An eye on the stocks
Next week, USDA will release its big June forecast of planted acres and grain supply on hand, its Grain Stocks and Acreage report. But, the grain supply scenario has been in the forefront of what's thought to be driving the latest bullish movement in the trade. So, what's important to watch for in next week's report?
Corn feed usage, domestic soybean crush and, most importantly, planted acres are all big numbers to watch in next week's report, which could again have a major influence on the grains, says University of Illinois ag economist Darrel Good.
"There is once again a major focus on the USDA's Grain Stocks and Acreage reports to be released on June 30," he says. "Last year's experience with the June 30 reports, along with the high degree of uncertainty about planted and harvested acreage, highlights the importance of this year's reports."
So, why was last year's report so profound to the trade? Corn planted acreage and stocks on hand were both lower than anticipated. But, along came September stocks and use numbers that were tough to add up.
"The USDA's estimate of June 1, 2010 corn inventories was about 300 million bushels (6.5%) smaller than anticipated by the market and about 245 million smaller than our pre-report calculation. The low stocks estimate implied a level of feed and residual use during the third quarter of the 2009-10 marketing year that was too large to be believed," Good says. "Subsequently, the September 1, 2010 corn stocks estimate came in larger than expected so that feed and residual use of corn during the final quarter of the year appears abnormally small. The estimates of feed and residual use for the last half of the year and for the entire year appear logical, but the distribution between the third and fourth quarters was unusual."
That makes the feed number a big one to watch, not just in next week's report but moving forward, Good says. "For the year, the USDA projects feed and residual use of corn at 5.15 billion bushels. USDA has estimated use during the first half of the year at 3.614 million bushels. If the projection for the year is correct, 1.536 billion bushels will be consumed in the last half of the year. Fourth quarter feed and residual use will be influenced by the level of wheat feeding, which is expected to be large due to the much larger soft red winter wheat crop and the current low price of wheat relative to corn. Based on the number of livestock being fed, use during the third quarter should have been relatively large."
Soybean crush, which the Census Bureau will peg later this week, is another number to watch. It's one of the typically most volatile numbers USDA releases, and with current estimates "unusually large" for soybean use in the first half of the year, Good says that number could be "less than normal.
"If use during the third quarter was near 28 million bushels, June 1 stocks should have been near 600 million bushels," he adds.