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Bullish corn, soybeans, and wheat

Agriculture.com Staff 05/14/2007 @ 8:05am

Friday's WASDE provided the world with USDA's initial outlook for the new marketing year.

In the big picture, with the US potentially planting the largest number of acres since 1944, an increase of 12.09 million more than 2006, both US and world end stocks are projected to shrink, very much in line with what Allendale's projections have suggested.

World Stocks: For the third consecutive year world stocks of corn are projected lower. Unnerving is the fact much of the onus to correct world stocks are placed squarely on the US to perform. 2007-08 end stocks are projected at 90 MMT vs 93 for 2006-07 which was revised 1 MMT higher on Friday. The record low for world stocks dating back to 1980 at 89 MMT. End stocks to use for 2007-08 are estimated 10.6% vs 11.5% for 2006-07 and are a new record low dating back to 1980.

Domestic Stocks: USDA projects new crop stocks 10 million bushels more than present old crop stocks and both remain under the psychological 1 billion bushel mark. USDA estimates new crop stocks of 947 mil bu vs 937 million bu for the present 2006-07 marketing year. Allendale estimates new crop end stocks at 823 mil bu, using a 149.8 bu/acre 2007 yield. Stocks to use for old crop are 8.1% vs new crop end stocks to use of 7.6% and represent the second lowest on record dating back to 1980 with the exception of 5% in 1995.

Season Ave Farm Price: Old crop vs new crop for corn, soybeans and wheat are as follows; $3.10 vs $3.40, $6.30 vs $7.00 and $4.27 vs $4.65. All three crops are expected to have better season average farm prices for 2007-08 vs 2006-07. Ethanol: demand for ethanol in 2007-08 estimated at 3.4 bil bu vs 2.15 billion in 2006-07 or 58% higher.

Ethanol: Demand for ethanol in 2007-08 estimated at 3.4 bil bu vs 2.15 billion in 2006-07 or 58% higher. Given the pace of ethanol production for the first six months of 2006-07 there is no need for USDA to increase corn use for ethanol. 2006-07 ethanol demand is forecasted to be 34% higher than 2005-06 and for the first six months of 2006-07 the pace is running only 27% higher and will now need to see each month's production of the six remaining to be 41% higher than year ago levels.

Exports: USDA must have realized corn shipments, not sales are in trouble for 2006-07 as it reduced potential from 2.250 bil bu to a new level of 2.2 bil bu. New crop export potential has been reduced to 1.975 bil bu vs Allendale's estimate of 2 bil bu.

Strong Evidence: Dating back to 1990 Allendale research found 7 years when on May 6th, corn plantings were below the five year ave. Of the 7 years defined, if the actual delay was at or more than 7.6% of the 5 year ave, the final (not January annual) yield came in below USDA's trend yield. USDA defines its trend based on yield data from 1960 to 2006 but does exclude the sever drought year of 1988. Of the four years which met the criteria of actual planting delays greater than 7.6%, the minimum reduction from trend yield to the final yield was 7.2% with the max yield reduction of 19.3%. In more detailed terms, in 1991 late plantings as of May 6th assisted in a 12.6 bu per acre decline from trend to final, 24.1 bpa less in 1993, 14 bpa less in 1995 and 10 bpa less as recent as 2002. For the visual, please see the graph where you would normally find the morning Weather Watch page. Please call or e mail with any questions.

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