Supply and demand possibilities in the May USDA report
In the World Agriculture Supply and Demand Estimates report that will be released May 10, USDA will provide balance sheets for 2012/13 crops. Things can change but the demand side of the balance sheets will probably resemble the ones USDA had in its long-term projections released in February. But now we have new information about farmers' planting intentions for the upcoming crop year. Traditionally USDA will stick to the acreages in the Prospective Plantings report in May and June and then update its forecasts with data from the June Acreage report. This week, we look at what may happen to stocks of the major crops in the upcoming USDA report.
The outlook for the corn sector is bearish if yields in 2012 are near trend. Farmers say they will plant nearly 96 million acres to corn this year, the largest amount since the 1940s. USDA used a 164 bushel per acre trend yield in its February long term baseline and not much has happened since then to change that figure. Corn planting is off to an early start and there is a strong likelihood that most or all of the corn will be planted before the window for optimal yields closes. In the February update, USDA was calling for a pretty impressive increase in demand for 2012/13 with feed use up 625 million bushels, with no real reason to expect significantly higher livestock numbers. Exports increased by 275 million bushels from 2011/12 to 2012/13. These changes, coupled with a small decrease in ethanol use, result in total demand in 2012/13 of 13.47 billion bushels, up 860 million from the 12.6 billion USDA was using for 2011/12. Since the February forecast, USDA has boosted U.S. corn exports for 2011/12 by 100 million bushels.
Even with a solid increase in demand, ending stocks more than double to the highest level since 2005/06. Prices in 2012/13 would probably average below the $5 per bushel mark during the 2012/13 crop year period from September through August. Things can change as we go through this year and next, but at this point the supply and demand balance for corn looks a little bearish.
The market for soybeans is already getting tight and farmers said they would reduce soybean acreage by more than 1 million acres in 2012. Recent strong prices may induce farmers to plant a few more acres of soybeans than they said they would at the beginning of March but USDA will probably use the 73.9 million acres figure in the May supply and demand forecast. The demand side of the market has probably improved since USDA provided the 2012/13 forecast back in February. Production estimates for Brazil and Argentina are 330 million bushels lower than they were in February, and at least part of the reduction will result in additional U.S. soybean exports, with some in 2011/12 and some in 2012/13. Here is a possible supply and demand balance sheet for soybeans based on expected USDA projections in May.
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