While most of Washington, D.C. was fussing with 20-30 inches of snow, a stalwart group of statisticians was warm and snug inside the USDA lock-up area preparing the latest Supply and Demand report for domestic and global crops. As the market expected, small amounts were taken from the US corn and soybean carryover for the current marketing year, but wheat did not fall into that realm at all.
When USDA released the February Supply and Demand Report Tuesday, feed grains ending stocks were lowered with the help of increased domestic use of corn and increased export interest for US sorghum. Corn use was raised 100 million bushels to 4.3 billion because of increased ethanol production, helped by higher prices for fuel and for distillers dried grains. In fact USDA estimated 16% more corn went to ethanol plants in November and December than in the same period in 2008. While ethanol prices have softened, lower corn prices have allowed plants to retain the profitability. In addition to increased use of corn for ethanol, USDA added 50 million bushels to its estimate for corn exports, subsequently reducing ending stocks by 45 million bushels. Feed use was kept at 5.55 billion bushels, and ending stocks dropped to 1.719 billion bushels. Statisticians knocked a nickel from each end of the price range for the marketing year, which extends by 25 cents from either side of $3.70.
Globally, higher corn production in Argentina was partially offset by lower corn production in the European Union. Bigger yields in South America and more acreage boosted corn production estimates by 2.2 million tons over January. Corn trade was raised slightly, but lower US corn exports were more than offset by a 1.5 million ton increase in Argentine exports. Global ending stocks are being drawn down by 2.1 million tons for corn.
USDA clipped 35 million bushels from prior estimates of the soybean surplus, dropping it to 210 million bushels for the old crop, helped by more exports and a higher crush rate. US soybean exports were raised to a record 1.4 billion bushels as demand continues to be strong. The crush was raised by 10 million bushels to 1.72 billion because of strong global demand for soybean meal and lower amounts of protein from the 2009 soybean crop. Despite slower soybean oil use resulting from the loss of the $1 per gallon credit on soydiesel, USDA retained its level of estimated used due to last week’s announcement by the EPA that biodiesel mandates would remain. Subsequently, USDA knocked 20 cents off the expected price range for soybeans, which now stands at $8.70 to $10.20 per bushel. The range for soybean meal was raised $5 per ton, and the range for soybean oil was cut by 2.5 cents per pound.
Globally, soybean production estimates were raised 1.6 million tons, helped by improved production prospects in South America. Soybean and oilseed trade was raised because of continued imports by China. Global oilseed stocks held steady.
Instead of cutting the carryout, USDA increased the US wheat carryout because of wheat imports coming into the Southeastern US for feed purposes. Despite low wheat prices and a low dollar, wheat imports are increasing by 5 million bushels over January, and that pushed the carryout up to 981 million bushels. Domestic wheat exports were left unchanged and USDA narrowed the estimated price range by a nickel on both ends, and it now extends a dime on either side of $4.85 per bushel.
Globally, wheat supplies were boosted because of increased production in South America and Ukraine. Global wheat trade volume was also raised, as were ending stocks.
Looking at the impact of the report, University of Missouri marketing specialist Melvin Brees reports wheat ending stocks remain burdensome and fundamental factors remain negative for wheat prices. He says the larger Argentine corn crop and the large Brazilian soybean crop will also provide abundant global stocks. Those factors, plus expiring CRP contracts, reduced wheat acreage, weakening oil prices and the stronger dollar will all contribute negatively to grain prices. He’s expecting marketing uncertainty and price volatility.
Summary:
Domestically, more ethanol consumption of corn and more export demand for US soybeans were seen as bright spots in the February Supply and Demand Report from USDA, but burdensome wheat supplies and large corn and bean crops in South America will help put downward pressure on grain markets. They are expected to be volatile.