Shock and Awe in the Corn Stocks
(DTN) Clearly, the biggest surprise in Thursday morning's USDA reports was the corn ending stocks figure. These Sept. 1 numbers for corn and soybeans are the "final" ending stocks with which USDA "trues up" its marketing year consumption numbers in the October crop report.
USDA told us Thursday morning that the ending stocks for last year's corn crop were 1.7075 billion bushels. That's a 13.1 percent stocks-to-use ratio, or a 48-day supply of corn carried over from the old crop to supplement new-crop production.
Since old crop use is now history (the marketing year ended on Aug. 31), the main impact of the revised numbers is on projected 2010/11 ending stocks. If we assume for a moment that USDA makes no change in 2010 production in the October crop report, the increased carryin from 2009/10 would potentially boost August 2011 ending stocks to 1.438 billion bushels. That's a stocks-to-use ratio of 10.7 percent, tighter than last year's revised 13.1 percent but not nearly as tight as the 8.3 percent implied in the September WASDE report.
The 322-million-bushel swing in ending stocks from the prior forecast is worth somewhere between 15 and 25 cents per bushel in cash average price for the year depending on whether you are using "new era" pricing models or a much longer timeframe. Futures price ranges will be more volatile than the cash average, of course, and we're seeing some of this today.
Unlike in soybeans, USDA doesn't show residual use as a separate reporting category for corn. Feed and residual use are all one number. Based on the record July ethanol production of 1.116 billion gallons, USDA doesn't have much wiggle room to trim FSI (food, seed, industrial use) consumption numbers. Exports are also pretty well known, except for the variance between the official Census numbers (that won't be reported until next month) and the USDA weekly export inspections numbers. Thus, most of the 322-million-bushel change in ending stocks will have to be made in the feed and residual use category.
Even with our most extreme adjustments to FSI and exports, the feed and residual quarterly use for the June-August quarter will have to be 600 million bushels or less. That is a multi-decade low in that number for the fourth quarter. We know that GCAU's (grain consuming animal units) are down this year vs. last year, so a number below last year's 711 million bushels is easy to believe. A 16-percent cut isn't believable, however. Most of the change will have to be a negative residual use number. As I have joked from time to time, negative residual use means "we found it and we don't know where it came from."
We also want to look at where USDA might have found the corn. That has basis implications, and also can address a concern about whether new-crop corn was mixed into the old-crop count.
An estimated 350 million bushels of 2010 crop corn had been harvested prior to Sept. 1. While USDA is very careful to ask whether the corn inventory reported is old crop, there is a subtle substitution that has caused them fits in the past. If that new-crop corn is fed or exported prior to Sept. 1, it will look like an old-crop use. The old-crop corn will still be sitting there and show up in the stocks report. This could easily be the case this year, given all the known poor-quality 2009 corn (heat damage, light test weight, vomitoxin) that was being held back for blending with better-quality new crop.
Fourth-quarter disappearance from the five Western Corn Belt states was 1.249 billion bushels. That's a drop from 1.323 billion last year. Among those five states, only Kansas had any meaningful corn harvest prior to Sept. 1. Disappearance from the Eastern Corn Belt states of Ohio, Indiana and Illinois was 47 million bushels larger than last year, at 812 million bushels. The Illinois inventory was drawn down the hardest, and doesn't look like it had new crop mixed in, even though the southern Illinois harvest was well under way before Sept. 1.
The other area to examine is the Gulf Coast states. Unfortunately, USDA doesn't show corn stocks for Texas or Louisiana to avoid revealing individual operations and firms. The off-farm corn stocks in Texas were larger than a year ago by 1.23 million bushels, but that isn't going to get us to 322 million very quickly!
So, as a grain producer or grain handler, how much do I react to this information? First, we have to lower our expectations slightly on the top end of prices. There is just more corn available than was previously thought to be the case. If there were no other adjustments to production or demand, we would expect prices to be 15 to 25 cents lower. However, and it is an important HOWEVER, USDA will be issuing new crop production estimates on Friday, Oct. 8.
If they were to leave acreage unchanged in that report, and drop the national average yield by 4 bushels per acre, that would totally negate today's increase in the 2010/11 beginning stocks, and we'd be back to talking about a 1.1 billion bushel ending stocks. Such a cut is certainly in the trade's sights, since that is around 158 bushels per acre, and several analysts have already floated such a number based on the consistently poor yields being reported in the southern half of the Corn Belt. Please note that leaving the acreage unchanged is not a given. USDA is scheduled to incorporate the FSA acreage data into their forecast models in the October report.
Another wildcard is fund intentions. Sept. 30 was the last day of the calendar quarter, and for much of the last week, the funds have been pulling money out of winning long positions and re-allocating it to undervalued commodities. Starting Oct. 1, and particularly next week, the question becomes whether they have additional money to invest for the fourth quarter, or are taking some out to deploy elsewhere in the investment world. Stay tuned for further developments!
http://www.dtnprogressivefarmer.com/
USDA told us Thursday morning that the ending stocks for last year's corn crop were 1.7075 billion bushels. That's a 13.1 percent stocks-to-use ratio, or a 48-day supply of corn carried over from the old crop to supplement new-crop production.
Since old crop use is now history (the marketing year ended on Aug. 31), the main impact of the revised numbers is on projected 2010/11 ending stocks. If we assume for a moment that USDA makes no change in 2010 production in the October crop report, the increased carryin from 2009/10 would potentially boost August 2011 ending stocks to 1.438 billion bushels. That's a stocks-to-use ratio of 10.7 percent, tighter than last year's revised 13.1 percent but not nearly as tight as the 8.3 percent implied in the September WASDE report.
The 322-million-bushel swing in ending stocks from the prior forecast is worth somewhere between 15 and 25 cents per bushel in cash average price for the year depending on whether you are using "new era" pricing models or a much longer timeframe. Futures price ranges will be more volatile than the cash average, of course, and we're seeing some of this today.
Unlike in soybeans, USDA doesn't show residual use as a separate reporting category for corn. Feed and residual use are all one number. Based on the record July ethanol production of 1.116 billion gallons, USDA doesn't have much wiggle room to trim FSI (food, seed, industrial use) consumption numbers. Exports are also pretty well known, except for the variance between the official Census numbers (that won't be reported until next month) and the USDA weekly export inspections numbers. Thus, most of the 322-million-bushel change in ending stocks will have to be made in the feed and residual use category.
Even with our most extreme adjustments to FSI and exports, the feed and residual quarterly use for the June-August quarter will have to be 600 million bushels or less. That is a multi-decade low in that number for the fourth quarter. We know that GCAU's (grain consuming animal units) are down this year vs. last year, so a number below last year's 711 million bushels is easy to believe. A 16-percent cut isn't believable, however. Most of the change will have to be a negative residual use number. As I have joked from time to time, negative residual use means "we found it and we don't know where it came from."
We also want to look at where USDA might have found the corn. That has basis implications, and also can address a concern about whether new-crop corn was mixed into the old-crop count.
An estimated 350 million bushels of 2010 crop corn had been harvested prior to Sept. 1. While USDA is very careful to ask whether the corn inventory reported is old crop, there is a subtle substitution that has caused them fits in the past. If that new-crop corn is fed or exported prior to Sept. 1, it will look like an old-crop use. The old-crop corn will still be sitting there and show up in the stocks report. This could easily be the case this year, given all the known poor-quality 2009 corn (heat damage, light test weight, vomitoxin) that was being held back for blending with better-quality new crop.
Fourth-quarter disappearance from the five Western Corn Belt states was 1.249 billion bushels. That's a drop from 1.323 billion last year. Among those five states, only Kansas had any meaningful corn harvest prior to Sept. 1. Disappearance from the Eastern Corn Belt states of Ohio, Indiana and Illinois was 47 million bushels larger than last year, at 812 million bushels. The Illinois inventory was drawn down the hardest, and doesn't look like it had new crop mixed in, even though the southern Illinois harvest was well under way before Sept. 1.
The other area to examine is the Gulf Coast states. Unfortunately, USDA doesn't show corn stocks for Texas or Louisiana to avoid revealing individual operations and firms. The off-farm corn stocks in Texas were larger than a year ago by 1.23 million bushels, but that isn't going to get us to 322 million very quickly!
So, as a grain producer or grain handler, how much do I react to this information? First, we have to lower our expectations slightly on the top end of prices. There is just more corn available than was previously thought to be the case. If there were no other adjustments to production or demand, we would expect prices to be 15 to 25 cents lower. However, and it is an important HOWEVER, USDA will be issuing new crop production estimates on Friday, Oct. 8.
If they were to leave acreage unchanged in that report, and drop the national average yield by 4 bushels per acre, that would totally negate today's increase in the 2010/11 beginning stocks, and we'd be back to talking about a 1.1 billion bushel ending stocks. Such a cut is certainly in the trade's sights, since that is around 158 bushels per acre, and several analysts have already floated such a number based on the consistently poor yields being reported in the southern half of the Corn Belt. Please note that leaving the acreage unchanged is not a given. USDA is scheduled to incorporate the FSA acreage data into their forecast models in the October report.
Another wildcard is fund intentions. Sept. 30 was the last day of the calendar quarter, and for much of the last week, the funds have been pulling money out of winning long positions and re-allocating it to undervalued commodities. Starting Oct. 1, and particularly next week, the question becomes whether they have additional money to invest for the fourth quarter, or are taking some out to deploy elsewhere in the investment world. Stay tuned for further developments!
http://www.dtnprogressivefarmer.com/
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