by Darin Newsom, DTN Senior Analyst
OMAHA (DTN) — The February USDA and WASDE reports are often overlooked, suffering from middle-child syndrome following the overhyped January round of numbers and preceding the March 31 prospective plantings hubbub. This year could see the numbers hold traders’ attention a little longer, though, particularly in regard to South American production.
USDA will release its February Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports at 7:30 a.m. CST Thursday.
WORLD PRODUCTION AND ENDING STOCKS
Corn: Corn production in both Argentina and Brazil is expected to be trimmed in the February report due to hot and dry summer weather. The average estimate for Argentine corn is 22.5 million metric tons as compared to the January WASDE estimate of 26 mmt. Brazilian production is expected to fall from 61 mmt in January to 59.8 mmt. Local estimates are lower than both of these pre-report figures. However, using what we have and leaving global demand unchanged at 868 mmt, global ending stocks could be calculated to fall to 123.4 mmt. This is the smallest ending stocks figure since 1977-1978. The ending stocks-to-use ratio would decrease to 14.2{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f}, still the tightest since 1973-1974.
Soybeans: Soybean production in Argentina and Brazil is also expected to decrease due to adverse summer weather. The Argentine crop is estimated to come in 2 mmt below the January projection of 50.5 mmt, with Brazil falling 2.3 mmt. If realized, and again leaving global demand unchanged at 259.3 mmt, global ending stocks would drop below 60 mmt to about 59.1 mmt, putting the ending stocks-to-use ratio at 22.8{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f}. Both of these numbers (ending stocks, ending stocks-to-use) are comparable to what was estimated at the end of the 2007-2008 marketing year that saw the DTN National Soybean Index (national average cash price) post a high of $15.75 in mid-June.
Wheat: While the Argentine wheat crop could see a small decline from the January estimate of 14.5 mmt, the focus will be on production forecasts for the European Union and the Former Soviet Union. A colder-than-normal winter over much of Europe and the Black Sea region has threatened winter wheat crops, possibly leading to reduced crop expectations. Of course the global wheat crop, just like its domestic cousins, has to be killed at least a half-dozen times before it is officially declared dead, so the jury is still out on potential damage. The January WASDE report pegged global ending stocks at 210 mmt, the second largest on record to the 210.7 mmt estimated at the end of the 1999-2000 marketing year, and ending stocks-to-use ratio at 30.8{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f}.
2011-2012 ENDING STOCKS
Corn: Domestic numbers are expected to take a backseat to global numbers in February, with most looking for a ripple effect from the expected reduction in global production. In corn, ending stocks are expected to dip by roughly 49 mb. With few changes expected on the supply side, the almost 50 mb change should come in demand. Of the three major categories, the most likely to be bumped up is export demand, due in large part to the reduced crop in Argentina (the second-largest exporter in the world). Through the first 21 weeks of the 2011-12 marketing year, corn export shipments are on pace with USDA’s January demand estimate of 1.65 billion bushels. This makes an increase to about 1.7 bb more likely. Slow gasoline demand so far in 2012 and the smallest cattle herd in more than 60 years limit possible gains in corn for ethanol and feed demand. If realized, domestic ending stocks to use could fall to 6.2{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f}.
Soybeans: Domestic soybean ending stocks are expected to see only a minor decline to 269 mb from the January estimate of 275 mb. While the market could see actual export demand increase due to reduced production possibilities in South America, through the first 21 reporting weeks, export shipments are running 5{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} behind the five-year average. Hypothetically, if the U.S. were to cover the entire potential decrease of 4.3 mmt in South American supplies it would equate to an additional 90 mb of export demand, pushing the domestic total to 1.365 bb.
Wheat: U.S. wheat ending stocks are expected to see little change, dipping from the January estimate of 870 mb to 868 mb. If realized this would keep the domestic situation in a bearish situation, holding ending stocks to use near the January calculation of 41.2{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f}, the second largest since the 1987-1988 marketing year. Export shipments through the first 34 reporting weeks of the 2011-2012 marketing year show all wheat on pace with the January demand estimate of 950 mb.
THE MARKET’S VIEW
Corn: Action in the futures spreads during January saw the carry in the nearby March-to-May spread weaken by 2 1/2 cents while the carry in the May-to-July spread weakened 3 cents. Both indicate the commercial side of the market grew more bullish regarding supply and demand. Decreased ending stocks for both the U.S. and world would be in line with what the market was saying at the end of January.
Soybeans: The carry in 2011-12 soybean futures spreads were near unchanged following trading action in January, though fractional weakening was seen. This would indicate a neutral to slightly more bullish view at the end of January as compared to the end of December. Pre-report estimates of a slight decline in domestic ending stocks (6 mb) would seem to agree with the movement of old-crop spreads in January.
Wheat: The carry in the Chicago March-to-May futures spread weakened by 4 cents over the course of January. However, the overall strength of the carry continues to indicate a long-term bearish commercial outlook. This action would imply that the global supply-and-demand situation should remain bearish, though a slightly bullish surprise could be seen in the domestic numbers.
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Posted with DTN Permission by Haylie Shipp
