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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.

The toughest number to peg in this year's June report, Good says, will be planted acres. Though the latest Crop Progress report shows planting and crop development is about up to the normal pace, there are still a lot of acres out there that remain up in the air, making this month's estimate a tough one.

"Planted and harvested acreage forecasts for both corn and soybeans are more difficult to anticipate than is typically the case. Late planting in the eastern Corn Belt and northern Plains along with flooding in the Ohio, Mississippi, and Missouri River Valley is thought to have reduced total crop land acres planted relative to intentions reported in the USDA's March Prospective Plantings report," Good says. "Intentions were for 92.2 million acres of corn and 76.6 million acres of soybeans. The mix of acreage is still difficult to anticipate. Most believe that corn acreage is less than intended, but ideas have shifted from a loss of 3 to 4 million acres to a loss of less than 2 million acres. Corn acreage may exceed intentions in some western areas."

One danger in looking too closely at acreage and stocks numbers, especially with this year's corn crop, is overlooking what could be a bigger factor than most years. There are a lot of acres planted, but this spring's weather could mean USDA's acreage and stocks numbers may not be as telling as some think.

"Rather than acres lost, I would be more concerned about limited yields by weather conditions. Even ours that was planted in-season may show potential yield loss even with a week or so of delays," says Marketing Talk member kraft-t. "Others who were delayed far longer may produce decent yields with a late maturity and high drying costs. It still depends on how Mother Nature treats us from here on out."


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