January corn reports offer something for bulls and bears
For the last six years, the March corn futures contract traded either limit higher or limit lower following USDA’s release of the January World Agricultural Supply and Demand Estimates (WASDE) and the January Grain Stocks reports. Despite these reports being released while the futures market was trading, the market didn’t trade to the limit last Friday when the reports were released.
That’s not because there weren’t significant changes to the supply and demand tables; rather, the reports offered both bullish and bearish figures.
USDA made several changes to the domestic supply and demand balance sheet for corn in the January WASDE report. Prior to the report’s release, many expected a reduction in harvested acres. In fact, USDA did reduce harvested acres by 300,000 acres. Interestingly, planted acres were also increased by 300,000 acres. This effectively increased the 2012 acreage abandonment from 9.5% to 10.0%, closer to what many had been expecting throughout the drought-stressed growing season.
USDA also increased national yield by 1.1 bu/a to 123.4 bu/a in its January crop production report, which is usually considered the final yield estimate for the marketing year (Table 1). This yield increase offset the reduction in harvested acres and raised total production for the 2012/13 marketing year by 55 million bushels. This production increase came as a bit of a bearish surprise to the market as traders were, on average, expecting little change in national yield and a reduction in harvested acres. So, total production ended up being 154 million bushels higher than the average expected prior to the report's release.
The bearish nature of the corn supply numbers were offset by larger-than-anticipated domestic use. USDA increased feed and residual usage of corn for the 2012/13 marketing year by 300 million bushels. This is based on its increase in beef, pork, and poultry production for the year. Additionally, it reflects stronger-than-expected livestock demand for corn from September through November 2012 as measured by the implied disappearance calculated from the quarterly Grain Stocks report, which was also released last Friday.
USDA’s survey of on-farm and off-farm grain inventory found 8.030 billion bushels of corn on December 1 (Table 3). After adjusting the September 1, 2012 corn stocks of 988 million bushels by imports and the crop production harvested last fall, the 8.030 billion bushels supply of corn on December 1 implied total disappearance from September 1 through December 1 was 3.74 billion bushels. Even though this was down about 200 million bushels compared to the same time period the year before, it was well above the trade’s pre-release expectations. Thus, total corn stocks on December 1 were 180 million bushels less than the average expected, as shown in Table 3.