April 13, 2012

American Farm Bureau Federation analyses new crop market dynamic

The Agriculture Department's new report on world agricultural supply and demand estimates is setting up what could be an interesting new crop market dynamic, according to economic analysis from the American Farm Bureau Federation (AFBF).

The WASDE report issued today was largely unchanged on the corn and feed grain side and was generally viewed as neutral, but on the soy side, supply estimates were reduced and US exports increased to help make up for smaller South American crops, according to AFBF Economist Todd Davis.

"We are looking at a situation where soy, rather than corn, could very well become the market leader in the US grain and oilseed complex," Davis said. "Typically, corn prices usually help drive the market prices for the other grain and oilseed commodities, but given what we now know, soys are ready to move to the forefront."

Davis explained that today's report, coupled with prospective planting estimates from late March, indicate the US is in rebuilding mode in regard to the nation's corn supply, as US farmers are expected to plant 95.9 million acres.

This represents the highest corn acreage since 1937. But soy supplies are likely to move in the opposite direction and become much tighter next year as 2012 US soy plantings are expected to decline by more than a million acres compared to 2011.

Complicating the picture has been the drought that has already cut into South American beans. Soys were clearly the newsmaker in this April WASDE report. US soy ending stocks number was reduced by 25 million bushels to 250 million bushels. The decline was due to an increase in the expected amount of soy crush and stronger US exports to make up for the South American shortfalls.

On the world level, soy ending stocks for 2011-12 are projected to decline to 55.52 million tonnes. The Argentina soy crop estimate has been reduced by 257 million bushels from the November estimate and the Brazilian soy crop has been reduced by 330 million bushels from the November estimate-again all due to the drought farmers in those nations worked through this growing season.

US corn ending stocks for the 2011-12 marketing year were unchanged from the March report. Pre-report estimates were for a reduction in stocks based on the March 30 grain stocks report. Davis said that projected marketing year ending corn stocks of 801 million bushels is a 6.3% stocks-to-use ratio, or roughly a 23 day supply of corn available at the end of August.

Also related to corn, the WASDE report projects greater livestock feeding of wheat instead of corn, which will reduce the amount of corn used for that purpose. In addition, the 2012 corn crop is being planted earlier this year, so there is greater potential of the new-crop corn being harvested in southern states that could be fed in August. Davis said that "would provide some cushion for the tight 2011-12 corn balance sheet."

At the world level, corn ending stocks for the 2011-12 marketing year will be the tightest since the 2006-07 marketing year with a stocks-to-use ratio of 14.2%, which was the tightest ending corn inventory in recent history, according to Davis.