July 9, 2004

 

 

June 30 Acreage Data To Boost US New-Crop Corn Carryout

 

Monday's July supply and demand report from the U.S. Department of Agriculture is expected to reveal a modest tweak to old- and new- crop balance sheet line items reflecting wavering 2003-04 export demand and higher 2004-05 acreage estimates.

 

Analysts surveyed expect 2003-04 U.S. ending stocks to increase by 50 million to 100 million bushels from the June estimate of 806 million. Adjustments to old-crop line items will be tied to possible revisions in 2003-04 export projections, with analysts looking for 2004-05 adjustments confined to revised planting and harvest data from the June 30 acreage report. The USDA is expected to hold off on yield adjustments until the August field

 

The USDA's report is scheduled for release at 0730 CT (1230 GMT).

 

Industry participants anticipate the USDA will revise usage figures, with the potential for a 25 million to 100 million bushel decrease in corn exports, a possible increase in ethanol demand and a possible upward revision to feed use.

 

Joe Victor, analyst at Allendale Inc. in McHenry, Ill., said he sees the potential for a 50 million bushel reduction in exports. "Looking at weekly export inspections the market needs to average over 60 million bushels a week in the final eight weeks of the marketing year to meet the USDA's current 2.050 billion bushel projection and history tells us that fourth quarter usage is not the best," added Victor.

 

Exports in 2003-04 are not going to come close to the USDA's current projection with exports not expected to average more than 40 million bushels per week which would result in total exports for the year of just 1.897 billion bushels, said Roger Knapp of STA Futures in Memphis.

 

"The USDA is slow to make downward adjustments in projected exports so I anticipate the July report will show a reduction of only 100 million bushels to 1.950 billion. However, USDA could reduce exports by an additional 50 million bushels in the August or September reports," Knapp added.

 

Sid Love of Kropf & Love Consulting in Overland Park, Kan., said he sees a potential wash on old-crop ending stocks with smaller export projections potentially offset by an increase in use for ethanol and feed.

 

ACREAGE REVISIONS FOCAL POINT OF 2004-05 ADJUSTMENTS

 

The addition of new planted and harvested acre projections revealed in the USDA's June 30 acreage report is seen potentially rebuilding corn carryout supplies back above the 1 billion bushel mark. The combination of the larger acres and with the USDA historically not changing its yield and demand projections for the new crop in the July updates, production outlooks are seen extending above the 10.6 billion bushel level.

 

The subsequent rise in production coupled with a larger projected carry-in figure from 2003-04 is expected to boost ending stocks above the magical 1 billion bushel mark unless the USDA tinkers with yields in an effort to hold production down.

 

Based on the current crop conditions, the government probably won't do much in the area of yields with the first field surveys expected next month, Love said. The USDA currently rates 73% of the 2004 crop in good to excellent condition.

 

Analysts contend that the USDA will tweak demand side projections in subsequent reports. An increase in livestock animal units in 2005 as well as smaller supplies of grain sorghum will result in more corn feeding, Knapp said.

 

In addition, "with 10 ethanol plants under construction the USDA's estimate for an increase in corn use for ethanol of 105 million bushels is too low, and I expect the estimate will be increased to reflect an increase of at least 135 million bushels over last year," said Knapp. The USDA currently projects corn use for ethanol at 1.3 billion bushels.

 

The USDA is also seen taking a close look at 2004-05 exports, with demand at the end of the 2003-04 crop year wavering. The increase in competition from eastern European feed wheat and an expected pick up in Brazilian and Argentine corn production in 2005, new crop exports may be trimmed by 100 million bushels. In its June report, USDA estimated 2004-05 export demand at 2.1 billion bushels.

 

On the world scene, The USDA is seen holding steady on projections except for any adjustments to U.S. balance sheet items.