Higher ethanol use cuts US corn supplies

 

 

Higher ethanol production is helping to eat into a mountain of US corn supplies, and demand for US soy is still holding up, even as competition will heat up in the coming months.

 

Wheat demand hasn't changed, but supply rose a bit because of imports.

 

The USDA's February supply and demand data held no major surprises, and market watchers said Tuesday (Feb 9) that outside influences such as the dollar, crude oil and the stock market will play just as much a part in determining grain prices.

 

Ending stocks for the 2009-10 corn marketing year were 1.719 billion bushels, under the 1.748 billion-bushel trade estimate and lower than 1.764 billion January estimate. Ending stocks are what is left over after accounting for total supply and total demand.

 

The pick-up in corn used in ethanol production was responsible for the drop in the total supply. The USDA based the hike in biofuel use based on the latest ethanol production data from the Energy Information Agency.

 

"Although returns have declined since November, recently lower corn prices continue to support profitability for ethanol producers," USDA said, citing higher prices for ethanol and distillers grains, a byproduct of ethanol output used in animal feed.

 

Last month, the USDA said the US would harvest a record corn crop of 13.51 billion bushels and since then prices have been falling on the unexpectedly larger supply.

 

"The increase in ethanol usage was not surprising and it could go higher in the months to come," said Brian Rydlund, market analyst with Country Hedging.

 

The increase in ethanol production helped to offset a drop in corn exports, which USDA lowered by 50 million bushels to two billion. Rydlund said, that too wasn't surprising, given the current sluggish pace of corn export business.

 

The question of the quality of last year's corn crop continues to be an issue, because the high level of moisture in the crop has led to greater problems with moulds. Rydlund said this could crop up on the export front. "We're hearing a little bit of chirping out of the Pacific Rim customers who are not getting the quality of corn they're used to," he said, noting grain elevators he's worked with cite it as a problem when they package corn for shipment.

 

He noted with USDA's increase in the size of the Argentine crop by 2.2 million tonnes to 17.2 million, it could eventually give the US some competition on the export front.

 

The US is still enjoying soy demand from both domestic and foreign users, even with a record South American crop still coming on line.

 

Ending stocks for the 2009-10 soy marketing year were 210 million bushels, below the 219 million-bushel trade estimate and under the January figure of 245 million.

 

The USDA increased the soy crush by 10 million bushels to 1.72 billion and exports by 25 million to 1.4 billion. The USDA said the US continues to benefit from last year's smaller global harvest, but the export situation will change soon once the South American harvest proceeds.

 

"Surprisingly, Chinese demand is expected to continue as the USDA raised its Chinese import estimate from 42 million tonnes to 42.5 million tonnes," said Morgan Stanley's Hussein Allidina, who called the report bullish for soy.

 

The USDA saw no change in soyoil used for methyl ester, the category which tracks biodiesel use, even though production fell following the loss of the US$1.00 per gallon blending credit at the end of December.

 

"The recent Environmental Protection Agency announcement of final rules for the 2009 and 2010 biodiesel mandates is expected to result in offsetting production gains through the end of the 2009-10 marketing year," the USDA said.

 

The USDA made no changes in the wheat demand estimates, but actually noted an increase in supply, with five million bushels of imports. That boosted ending stocks to 981 million bushels, slightly over the trade estimate of 973 million bushels and the January figure of 976 million.

 

The USDA said the imports were feed-quality wheat from Europe and South America, destined to the southeastern US.

 

Rydlund said even though it's not a huge amount imported, the fact that it was done given the hefty supplies of both US corn and wheat will be a psychological hit.

 

"It was purely an economic move," Rydlund said, adding it illustrates the high price of US wheat.