January 13, 2009

Grain demand fell more sharply than expected as lowered use of corn for ethanol and greater supplies of wheat globally mean higher ending supplies for both commodities.

 

Ending stocks for corn and wheat for the in both the US and globally, the US Department of Agriculture said Monday and quarterly US usage figures for the grains were softer-than-expected.

 

"The biggest surprise was the ending stocks for corn. [It's] the destruction of the ethanol sector and corn is also seeing competition for feed with the supply of feed wheat," said Joe Victor, vice president of marketing for Allendale Inc.

 

Soy ending stocks also rose in part because of a lower crush as soymeal consumption by the livestock fell. High grain prices this year led to greater slaughter of livestock. A saving grace for soy, though, was strong export business, especially to China, the USDA said.

 

The USDA also released its annual crop production figures for the fall harvest. Surprisingly corn and soy production rose versus the November estimate, the last time USDA released a tally of the crop.

 

The USDA said the final size of the 2008-09 US corn crop is 12.101 billion bushels. This compares to trade estimates of 11.982 billion bushels and the November USDA estimate of 12.020 billion. Output for 2007 was 13.074 billion.

 

The USDA said the final size of the 2008-09 US soy crop is 2.959 billion bushels. This compares to trade estimates of 2.910 billion bushels and the November estimate of 2.921 billion. Output for 2007 was 3.761 billion.

 

"We saw higher harvested area and yields. It finally confirms despite late planting in the spring and [weather problems] in the summer, the crop pulled through. We need to keep that in mind," said Brian Basting, analyst at Advance Trading, who said improved crop genetics helped yields stay high. "We have to respect that."

 

A very wet spring in the Midwest kept farmers out of the field and widespread flooding in early June in the central Corn Belt were some of the weather problems farmers faced in 2008.

 

The analysts spoke at a press briefing sponsored by the Chicago Board of Trade immediately following the data's release.

 

According to production data released Monday by USDA, corn yields for the fall harvest were 153.9 bushels per acre, versus 153.3 bushels estimated by the trade and 153.8 forecast in November. Yields were 151.1 in 2007.

 

Soy yields were 39.6 bushels per acre, versus 39.1 bushels estimated by the trade and 39.3 forecast in November. Yields were 41.7 in 2007.

 

Demand data released by USDA shows how ending stocks and quarterly grain stocks show usage at the end of 2008 dropped.

 

Ending stocks for the 2008-09 soy marketing year were 225 million bushels, above the 186 million-bushel trade estimate and above the December figure of 205 million.

 

Ending stocks for the 2008-09 corn marketing year were 1.790 billion bushels, above the 1.489 billion-bushel trade estimate and higher than 1.474 billion December estimate.

 

New-crop wheat ending stocks were at 655 million bushels, over the trade estimate of 600 million bushels and the December figure of 623 million.

 

First-quarter grain stocks for corn are estimated at 10.084 billion bushels, compared to the trade estimate of 9.845 billion bushels. A year ago grain stocks were 10.278 billion. A higher grain stocks figure means usage was down.

 

First quarter grain stocks for soy are estimated at 2.276 billion bushels, compared to the trade estimate of 2.181 billion bushels. A year ago soy stocks were 2.360 billion.

 

Second-quarter grain stocks for wheat were estimated at 1.422 billion bushels as of Dec. 1, versus the trade estimate of 1.365 billion. The September grain stocks were 1.857 billion. In 2007, December grain stocks were 1.132 billion.

 

"We saw a free fall in demand from first to second quarter," Victor said regarding corn and wheat quarterly stocks. "First quarter usage normally is strong and then starts to stair-step down and other (countries) come online globally."

 

Much of that comes from a reduction in corn used for ethanol production, which was lowered to 3.600 billion bushel versus December's figure of 3.7 billion.

 

Basting said just in November the estimate for ethanol was 4.0 billion bushels, shows how much USDA has cut this figure. He also said corn exports have seen a significant drop year over year.

 

The high supplies of corn will likely mean less of an acreage race this spring between corn and soy, but Victor said estimates of corn acreage remain very uncertain. "We've heard estimates anywhere between 80 million and 90 million acres, it's that wide," he said.

 

Victor said while the usage for soy is not as strong as has been versus a three-year average, "we've had good demand for soy from China."

 

The question is how long it will remain, given the harvest in a few months of the South American crop. Both analysts said the fate of the South American crop will drive prices at the CBOT, with soy the leader.

 

In world numbers, USDA estimated the Brazilian crop at 59.0 million tonnes, unchanged versus the December estimate. The Argentine estimate was 49.5 million, versus 50.5 million last month. Drought has pinched production there.