Supply and demand possibilities in the May USDA report

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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.

click image to zoom Here is what USDA’s corn balance sheet for 2012/13 might look like in May.

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.

click image to zoom The analysis shows very tight soybean stocks if farmers only plant 74 million acres of soybeans and U.S. exports increase as expected. Some relief might come from modestly higher acres in the U.S. this spring and higher acreage and better yields in South America next winter and spring. But at this stage it looks like soybean supplies will be tight and prices will be high for 2012/13.

The outlook for the wheat sector is difficult to project because foreign supplies are a key driver. Exports account for nearly half of total demand. The size of the crops in the FSU, the EU, Canada and elsewhere will be key factors in the U.S. wheat balance sheet. USDA forecast 2012/13 wheat exports of 950 million bushels when they provided their February update and the outlook probably hasn’t changed too much. Wheat acreage for 2012 was put at 56.5 million acres in February, but the estimate in the Prospective Plantings report is 55.9 million. Here is a look at the possible USDA wheat supply and demand projections for 2012/13.

click image to zoom This analysis suggests only a modest increase in wheat ending stocks if U.S. exports come in at the same level as they are expected to for this year. Feed use can swing pretty significantly from year to year depending on the quality of the crop and wheat prices relative to corn prices. Feed use has averaged 180 million bushels over the last four seasons if USDA’s current forecast for 2011/12 is accurate. Changes in the foreign wheat supply and demand balance can have a significant impact on U.S. wheat prices.

Overall the data suggest that USDA’s May forecast will show rising stocks for corn, and probably by a pretty significant amount. Wheat stocks may increase a little, but not by very much and stocks could actually tighten if exports increase a little compared to this year’s total. The data suggest tight soybean stocks for next year, with the potential for stocks to be extremely tight if this year’s U.S. yield falls even a little below trend. Even if acreage is above intentions, the outlook for the soybean sector is very strong. We will find out what USDA thinks on May 10.


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