Grain market values volatileSince the end of June, USDA reports have induced volatility in grain and soybean values.
Since the end of June, USDA reports have induced volatility in grain and soybean values.
Corn futures have climbed more than 75 percent on worries that the world’s largest producer will not be able to produce a large enough crop to meet the strong demand at home and abroad.
The world relies on the U.S. for nearly 64 percent of corn imports. Recently, USDA, as expected, lowered the U.S. corn yield to 154.3 bushels per acre vs. 155.8 bushels per acre in October. Keep in mind that this yield estimate is sharply less than last year and all expectations should be for further reductions in the final report in January.
Still, trade estimates are guesses of what USDA will say and perhaps not what the actual crop is. Therefore, the trade guessed exactly what USDA would estimate.
Prices rallied into the report on anticipation of how much the yield would be reduced. We should expect this type of behavior again on the January report. The drop in yield lowered total production to 12.54 billion bushels from 12.66 billion bushels in the October report.
Ending stocks now are pinned at 827 million bushels and down from the 902 million bushels in October’s report. The stocks, as a percent of usage, stands now at 6.2 percent which is the second lowest in history and compares with the stocks-to-usage ratio of 5 percent in 1995 and ’96.
This year, farmers heard nothing but negative forecasts last December and January for the prices of corn. By summer, farmers turned believers as prices fell into the June 1 stocks report. As prices rallied, many analysts were unable to bend with the turn of the market and continued to recommend cash sales or futures contracts into 2012.
In Nebraska, farmers sold for November and December delivery, thinking after the past two harvests, they would deliver off the combine. Fooled again by nature, farmers were blessed with an earlier harvest and producers filled their bins.
Now, augers once again are being pulled up to the bins for farmers to deliver corn that already was sold too cheaply.
Feed usage in the November report was lowered 100 million bushels while ethanol usage demanded those 100 million bushels, bringing usage to 4.8 billion bushels.
Something has to give. If production is less, there is less to go around. Sure enough, USDA lowered corn exports 50 million bushels. But after a year of continued discrepancy in Chinese corn production, USDA added 2 million metric tons of corn, putting the estimation at 168 million metric tons. Still, world ending stocks were revised downward to 129.16 million metric tons vs. 147.95 million metric tons last year.
In the grain markets, I think corn demand is going to grow and the U.S. still has a crop that is in decline. The current break is not rationing this crop. I recently heard one of the largest ag lending banks in the Midwest held its hog producers off from locking up corn supplies on these rallies. Right now, that feels better, but for how long?
Demand for dried distiller’s grains is good, and with crude oil prices near $90 a barrel, ethanol should remain in demand.
Ethanol users have not locked up prices into late winter. So no rationing yet with a crop expected to tighten.