February 8, 2010

Analysts see slightly smaller US corn ending stocks

 

Analysts are expecting minor revisions to the government's US corn ending stocks projection, and say that world estimates could be watched more closely.

The USDA's monthly supply and demand report, to be released on Tuesday (Feb 9), will pale in comparison to the high-profile series of government reports issued last month, when larger crop projections walloped the corn and soy market.

Analysts surveyed on average expect the USDA to project 2009-10 ending stocks at 1.748 billion bushels, down slightly from the government's January projection of 1.764 billion bushels.

The range of estimates from the 18 analysts in the survey was 1.602 billion-1.815 billion. Carryout for 2008-09 was 1.673 billion bushels.

Traders consider such levels comfortable. The huge crop and big ending stocks projections from the January 12 reports continue to dominate the psychology of the market, which has tumbled since then.

A floor trader said it was tough to see any justification for lower ending stocks in the February report. Crop adjustments are seen as unlikely until the government releases the results of a re-survey of the crop in March. Although ethanol demand might increase, that should be cancelled out by lower exports, the trader said.

He said that any reduction in ending stocks could potentially be reflected in the feed and residual category, which the government could alter to reflect a changed crop outlook.

Don Roose, president of US Commodities in Des Moines, said he is expecting ethanol demand to climb by 25 million bushels but export demand to drop by 50 million, prompting an ending stocks estimate of 1.789 billion bushels, up 25 million.

Analyst Mike Zuzolo said he is not expecting any major demand changes but thinks that the USDA will have to reckon with crop trouble, either in February or in its March report.

He thinks that harvested acres in the western corn belt will be lower than currently projected. More significant, he said, are quality problems, as low test weights due to the high moisture content in the corn could prompt hog producers to go out and secure more corn to ensure proper growth.

"These test weight issues in corn are real," Zuzolo said. "The pork producers in the Midwest are really starting to feel the effect of these lighter test weights."

Assuming there are no major changes in the US balance sheet, the trade will look more closely at the world estimates, analysts said.

Traders and analysts are expecting the USDA to increase projected corn and soy output in South America. Analyst Roy Huckabay said the weather has been "abnormally good" in Argentina.

Roose projects the USDA will peg Argentina corn at 17 million tonnes, up from a previous estimate of 15 million, and Brazil corn at 53 million, up from the USDA January estimate of 51 million.
 

Informa Economics issued more bearish projections last week, pegging the Argentina crop at 18.2 million tonnes and Brazil's at 53.3 million, traders said.

Some traders argue that at this point a huge South American crop has already been priced into the market. Zuzolo said that as long as USDA estimates do not exceed Informa's, the market will "weather the numbers pretty well."