Wednesday, May 11, 2011

USDA Supply and Demand – Corn and Soybeans - May 11th

USDA Supply and Demand – Corn and Soybeans
May 11th, 2011

This morning the USDA released its first supply and demand estimate for the 2011/12 crop year, as well as an update on last month’s report for the marketing year.  Below are the highlights:


The immediately bearish headline was the increase in the projected ending stocks for the current marketing year, up to 730 million bushels from 675 million bushels last month.  This probably reflects declining export demand in the face of record high prices.  The past several weeks have seen sharply lower exports, below the level required to meet USDA expectations.  This is necessary, as without some rationing the U.S. could find itself with extremely tight supplies towards the end of the summer. 

The first estimate of ending stocks next year was 900 million bushels, still very tight by historical standards, and while it is likely to be construed bearishly in the short term, could provide long term support for new crop prices. 

Drilling a little bit deeper into the USDA’s numbers, it is interesting to note the estimate for ethanol demand, which has slowed to almost no growth.  After rising 23.2 percent in 2010, and 9.5 percent this year, the USDA projects demand for ethanol to rise a paltry 1 percent in 2011/12.  Projected demand for the alternative fuel is probably the most important determinant of price of corn after production, as more than 40 percent of the crop now goes towards ethanol.  Until recently, blenders were allowed to add up to 10 percent ethanol into their gasoline, earning a nice tax credit, not to mention reduced costs as ethanol prices still lag those for the fossil fuel.  At the current level of production, ethanol is pushing up against that 10 percent ceiling as compared to gasoline production.  Recently, regulation was approved to allow up to 15 percent ethanol in gasoline blends for newer vehicles.  If the ethanol industry increases production to take advantage of the higher blend rate, the USDA’s estimate could prove to be too low, pointing to tighter than expected ending stocks.


USDA projected ending stocks for soybeans were also revised slightly higher, up to 170 million bushels from 140 million last month.  Once again, this is probably due to declining exports.  China has released beans from its official reserves in an attempt to ease food price inflation, reducing demand for U.S. beans.  Projections for next year show a small decline to 160 million bushels. 

The interesting bit from today’s report is the reduced export demand, down to 1.54 million bushels from 1.55 this year.  Export demand is the key driver of soybean prices in the U.S., as exports account for over 45 percent of production.  China is the largest importer of U.S. soybeans, and bean oil, while the EU is the largest buyer of bean meal.  The de-stocking in China would seem to point towards higher demand down the road, when they decide to replenish supplies.  As such, the reduced export forecast seems suspect.  International demand for U.S. beans rose 17.4 percent in 2009/10, 3.3 percent in 2010/11 (despite ‘beans in the teens’), so a -0.6 percent change next season may not be realistic.

-Jaime Macrae, CIM
Account Executive, Friedberg Mercantile Group

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