Bearish U.S.D.A. data send commodities reeling

by Ron Sterk
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KANSAS CITY — Bearish supply and demand data from the U.S. Department of Agriculture last week sent grain and oilseed futures prices into a tailspin, at least temporarily.

Prices for most corn futures contracts, as well as several soybean, soybean meal, rice and oats contracts traded down their allowable daily limits at the Chicago Board of Trade following the Jan. 12 U.S.D.A. reports. Wheat futures in Chicago, Kansas City and Minneapolis also dropped sharply. Most grain and oilseed futures prices lost about 5% to 10% of their value the day of the reports, although prices retained a good part of impressive gains scored in December and recovered some later in the week, especially in the case of the soy complex.

Taken as a whole, the U.S.D.A. reports on Grain Stocks as of Dec. 1, 2008, World Agricultural Supply and Demand Estimates as of Jan. 12, 2009, and 2008 crop production revisions painted a picture of sliding demand, especially domestically, and growing supply in the United States and the world.

The situation for corn was perhaps most dramatic. Corn carryover, or the amount of total supply unused at the end of the marketing year, on Sept. 1, 2009, was projected by the U.S.D.A. at 1,790 million bus, up 21% from its projection a month earlier and 10% above the 2008 level. The increase was even more fantastic compared with the department’s carryover projection in June 2008 of 673 million bus. At that time, it was thought Midwest floods had ravaged the U.S. corn crop and ideas of demand for exports, feed and ethanol still were strong.

Nearby corn futures prices set a record high of $7.54¾ a bus in late June before steadily dropping 61% to a low of $2.93½ in early December. Prices climbed back to $4.27½ by Jan. 6, before the data-prompted plunge last week sent prices more than 25% below year-ago values.

Since June, the U.S.D.A. has increased its projected U.S. corn supply by 557 million bus, or 4%, to 13,740 million bus for the current marketing year. And it has cut total use by 560 million bus, also 4%, for a total supply swing of more than 1,117 million bus. During the seven-month period, the U.S.D.A. has reduced projected use of corn for ethanol by 400 million bus and exports by 250 million bus.

Projected global corn supply estimates also were raised by the U.S.D.A. due to increased production in China, Mexico, Russia and the European Union, in addition to the United States. Global use was expected to decrease.

Soybean prices also sank last week, although the scenario appears somewhat less bearish than for corn because of continued strong foreign demand. Even though total export sales commitments as of Jan. 8 of U.S. soybeans for 2008-09 were up only 2% from a year earlier, sales were down 26% for wheat and 50% for corn.

Final 2008 U.S. soybean production was raised 39 million bus from December to 2,959 million bus. Domestic soybean crush was reduced by 30 million bus from December, but projected exports were raised by 50 million bus "due to strong sales and shipments to China." The department reported that China bought 557,000 tonnes of U.S. soybeans last week alone. Since Sept. 1, sales to China have totaled 9,106,200 tonnes, up 42% from a year earlier.

While it’s still early to forecast prices and production for 2009-10, for which 2009 crops will be counted, analysts generally expect corn planted area, which was record large in 2007, will increase from 2008 and soybean area will decrease from record large plantings in 2008.

Area for wheat is somewhat better known, at least for winter wheat that was planted last fall. The U.S.D.A. last week estimated total plantings of hard red winter, soft red winter and white winter wheat at 42.1 million acres, down 9% from a year ago and 5% below trade expectations that averaged near 44.2 million acres due to late row crop harvest, high input costs and lower wheat prices.

Anticipated prices and input costs will be primary factors used by farmers to determine how much corn, soybeans and spring wheat to plant in 2009. Corn is the most expensive of those to produce due to high fertilizer needs. But even those relationships are somewhat "muddled." While soybeans is one of the few agricultural commodities to show some price resilience, the spread between corn and soybean prices is about 20% narrower than it was a year ago, which would tend to support increased corn plantings. Sharply lower spring wheat prices from a year ago have put spring wheat at a sharp disadvantage in areas where corn or soybeans may be planted instead.

The U.S.D.A. will issue its report on farmers’ intentions for spring planted crops on March 31.

This article can also be found in the digital edition of Food Business News, January 20, 2009, starting on Page 24. Click here to search that archive.

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