Weather patterns to determine if grain prices are lower in 2013
USDA released its March World Agricultural Supply and Demand Estimates (WASDE) report last Friday, revealing world production and domestic balance sheets in line with traders’ pre-release expectations for corn and soybeans. As is typical for the March WASDE report, most changes were relatively small.
Regarding the U.S. corn supply and use situation, USDA made no changes to domestic production or beginning stocks for the 2012/13 marketing year. It did, however, increase U.S. imports by 25 million bushels since last month (to 125 million bushels), reflecting the continued strong pace of imports during the last month. On the demand side, USDA increased domestic feed and residual use by 100 million bushels due to growth in poultry numbers. USDA also decreased exports by 75 million bushels as a result of slow export sales and shipments, expected competition from wheat, and more competition from South America for export sales. Thus, no change in ending stocks was made since last month, such that the 2012/13 marketing year ending stocks remain at 632 million bushels. This is about 17 million bushels smaller than the average pre-release expectation. The ending stocks-to-use ratio further tightened, though, to 5.1% as a result of the higher projected use.
USDA did not change Brazilian corn production from its 72.5 mmt estimate last month, which was generally expected by analysts. Expectations were for about a 1.5 mmt decrease in Argentine corn production from the 27.0 mmt estimate in February due to continued dry conditions impacting yields. USDA did lower Argentina’s corn production in this month’s WASDE report, but only by 0.5 mmt to 26.5 mmt.
On the soybean side, USDA made no changes to domestic supply and demand estimates. Thus, ending stocks remain at a very tight 125 million bushels for the 2012/13 marketing year. No changes were made to the size of the Brazilian soybean crop since last month’s 83.5 mmt estimate. USDA decreased the size of Argentina’s soybean crop by 1.5 mmt to 51.5 mmt, a slightly smaller decrease than was expected. While dry conditions are impacting South American soybean and corn production, it is important to note that production will be significantly higher than last year. In fact, Brazilian soybean production is currently forecasted about 17 mmt higher than last year, while Argentine soybean production is projected to be about 10.5 mmt higher than a year ago.
The rebound in South American production since last year may be the first of things to come for the year ahead. While the World Agricultural Outlook Board (the agency responsible for the WASDE report) hasn’t begun its monthly estimates for the 2013/14 marketing year (which begins September 1 and includes the production from the crop that will be planted in 2013), USDA did release its preliminary projections for the next crop marketing year late last month at its Agricultural Outlook Forum. While these projections include production estimates that are primarily based on trendline yield forecasts, the bottom line is that these early USDA projections call for corn ending stocks to nearly triple and for soybean ending stocks to double in the 2013/14 marketing year. Should that occur, the stocks-to-use ratio for corn will increase from about 5.1% to 16.7% and soybeans will increase from 4% to 7.6%. If realized, corn and soybean prices will drop. USDA forecasts the current marketing year average corn and soybean prices at $7.10/bu and $14.30/bu, respectively. Its forecasts for the 2013/14 marketing year average farm prices at $4.80/bu and $10.50/bu.