October 15, 2007

 

Lower US corn, soy should be price-supportive

 

 

The reduction in corn yield and the lower harvested soy acreage in Friday's US Department of Agriculture's (USDA) October crop production report should be price-supportive, analysts said, as the data came as a surprise.

 

Wheat data should also underpin prices as USDA chipped away at ending stocks.

 

Early calls for the Chicago Board of Trade grain markets are all firmer.

 

The USDA said the 2007/08 US corn crop is estimated at 13.318 billion bushels in its October estimate. Analysts expected 13.459 billion and in September USDA said the size was 13.308 billion. Output for 2006 was 10.535 billion. Yield was reduced to 154.7 bushels per acre from 155.8 bushels in September.

 

The reduction in corn output "reminds you of last year" when the government lowered corn production from October to December, said James Barnett, grain analyst at MF Global.

 

Ending stocks for the 2007/08 corn marketing year were 1.997 billion bushels, above the 1.959 billion-bushel trade estimate. In September, USDA estimated carryout at 1.675 billion.

 

The USDA lowered the corn used for ethanol category by 100 million bushel to 3.2 billion and also lowered feed and residual use to 5.7 billion from 5.85 billion. Exports were raised by 100 million bushels to 2.350 billion.

 

Jack Scoville, Price Futures Group, said the USDA report data could mean the lows corn set in September around US$3.55 1/2 for the December contract should hold. "There's no need to take them out in a big way. Corn could trade up to US$3.80-US$3.85," he said.

 

Both analysts spoke at a CME Group-sponsored media briefing following the report's release.

 

The USDA said the 2007-08 US soy crop is estimated at 2.598 billion bushels in its October estimate. Analysts expected 2.648 billion and in September USDA said the size was 2.619 billion. Output for 2006 was 3.188 billion.

 

The USDA lowered the harvested acreage to 62.8 million acres from 63.3 million in September. "There was talk that acreage would be lower," Barnett said, with Scoville adding the actual drop was on the high end of expectations.

 

Ending stocks for the 2007/08 soy marketing year were 215 million bushels, under the 238 million-bushel trade estimate, and unchanged from the September estimate.

 

The USDA made few changes to its supply/demand table.

 

The recent rally in prices should entice more Brazilian production, both analysts said, but Scoville said with the recent dryness in northern Brazil hampering planting there, the weather needs to cooperate if Brazilian farmers are to expand acreage.

 

The USDA lowered total wheat production to 2.067 billion from the September estimate of 2.114 billion, reflecting the changes in September's small grains summary.

 

Wheat ending stocks were at 307 million bushels, above the trade estimate of 304 million, and lower than the September figure of 362 million.

 

The USDA modestly increased wheat used for seed by 3 million bushels to 86 million and lowered the feed and residual category to 125 million bushels from 170 million. Exports were increased by 50 million bushels to 1.150 billion.

 

"This still suggests a tight carryout to make room for lower production and higher exports we had to play with the numbers in feed," Barnett said. "

 

Friday's data underscores the "need to get the wheat crop planted," Scoville said.

 

Wheat prices have come off their all-time record prices of above US$9.50 a bushel set last month, but Scoville said the USDA report findings won't cause the market to fall.

 

In world production data, USDA said Chinese corn output is pegged at 143.0 million tonnes, versus September's estimate of 147 million.

 

Australian wheat production was estimated at 13.5 million tonnes versus the September estimate of 21 million. EU-27 wheat was estimated at 120.76 million versus 121.83 million in September.

 

Scoville said while the report was supportive to prices, rallies this week in grains markets might have already priced in some of the bullishness. Still, he said, the grain markets will continue to see strong prices, particularly with the US dollar as weak as it is. Since grain prices are dollar-denominated, that makes US farm exports cheaper.