by Darin Newsom, DTN Senior Analyst
OMAHA (DTN) — Similar to February, the March round of USDA reports seldom gets paid a great deal of attention, though this year could be different. Of interest to most will be possible cuts to global production numbers, particularly South American corn and soybeans, and what this could mean to global ending stocks.
WORLD PRODUCTION AND ENDING STOCKS
Corn: The most-watched numbers in Friday’s reports will likely be Brazil and Argentina corn production. In February these were pegged at 61.0 million metric tons and 22.0 mmt respectively, and it was thought at the time that these estimates were too high due to summer heat and drought. This time around the pre-report estimate is for Brazil’s corn crop to come in at 60.2 mmt while Argentina’s drops to 21.3 mmt. This decrease of 1.5 mmt makes up most of the expected cut of 1.8 mmt in global ending stocks. The average pre-report estimate came in at 123.47 mmt. Global coarse grains ending stocks are expected to be cut 2.39 mmt from the February estimate of 158.49 mmt.
Soybeans: Like corn, South American soybean production is expected to be trimmed in the February round of supply and demand numbers. Brazilian production is expected to be reduced 2.7 mmt while Argentina’s crop is thought to be down 1.2 mmt from February’s estimates. Global ending stocks are estimated to fall 2.52 mmt to a total of 57.76 mmt, and if realized would put ending stocks to use at 22.4{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f}. That’s not uncomfortably tight, but it certainly puts more interest on U.S. production this spring and summer.
Wheat: All the chatter this winter in regard to wheat was the lower-than-normal temperatures in Europe possibly harming that region’s crop. On the other hand, Australia and Canada are expected to see solid increases from their respective 2010-11 final production numbers of 27.9 mmt and 23.2 mmt. The bottom line is that global ending stocks of wheat are expected to be whittled by 2.39 mmt. And while that outlook could be viewed as bullish, the bigger picture ending stocks to use would be projected at a still robust 31.2{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f}, still the largest since the estimated 35{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} at the end of the 2001-2002 marketing year.
2011-2012 US ENDING STOCKS
Corn: Domestic corn ending stocks are expected to fall from the February estimate of 801 million bushels to 785 mb, or a decrease of 16 mb. The current pace of export demand, according to weekly export shipment numbers, would imply a marketing-year total of 1.75 billion bushels, up 50 mb from the February estimate of 1.7 bb. Feed demand could be reduced slightly, making up some of the difference between exports and ending stocks, while ethanol demand for corn could be left unchanged at 5.0 bb. Supply numbers aren’t expected to change much, holding near February’s 13.506 bb.
Soybeans: While domestic export demand for soybeans is trailing its average by about 6{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} near the mid-point of the marketing year, the thought is that reduced South American production will keep importers — China — interested in U.S. supplies deeper into the 2011-12 marketing year. Therefore, export demand could actually increase slightly, accounting for most of the expected 15 mb decrease in U.S. ending stocks. Crush could stay near unchanged at 1.615 bb with no change expected in total supplies.
Wheat: Average pre-report estimates put U.S. wheat ending stocks at 836 mb, down 9 mb from the February estimate. The pace of export shipments is running behind average by about 2{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f}, implying a possible reduction of 20 mb to 955 mb at some point. A reduction in export demand seems to go against the idea of tighter ending stocks, meaning either total supplies will need to be reduced or possibly feed demand increased. The stronger likelihood is the latter as those holding cash corn are doing so with tight hands while wheat could be moved to make room for the next harvest.
THE MARKET’S VIEW
Corn: Action in the May-to-July futures spread over the month of February showed the carry weaken from 3 1/2 cents to only 2 1/2 cents. This indicates a more bullish commercial outlook of supply and demand through the bulk the 2011-2012 marketing year, implying ending stocks to use could continue to tighten. With the nearby spread in an inverse (March contract is in delivery, but holds a strong premium over the May) a similar pattern to the spring of 2011 is developing.
Soybeans: The carry in old-crop May-to-July soybean futures spreads weakened almost 2 cents during the month of February, indicating a more bullish commercial outlook at the end of the month. The lower pre-report estimate for domestic and global ending stocks would seem to concur with what was seen in the market last month, though the situation has continued to tighten in March.
Wheat: The sharp weakening of the Chicago March-to-May futures spread over the course of February would imply a possible dramatic cut in domestic ending stocks in the March supply and demand report. In this case, the spread may have been skewed by its approaching delivery period so could be viewed with an asterisk. The strength of the carry in the new-crop July-to-September spread continues to indicate a long-term bearish commercial outlook.
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
Posted with DTN Permission by Haylie Shipp
