Surprises seen in grain stocks, not plantings report

by Ron Sterk
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With the possible exception of sugar beet acreage, there were few surprises in the annual U.S. Department of Agriculture’s Prospective Plantings report, but there were plenty of unexpected numbers in the agency’s quarterly Grain Stocks report, released at the same time on March 28. It was much higher-than-expected March 1 corn, wheat and soybean stocks that sent futures prices for all three commodities sharply lower, with most pressure on old-crop contracts.

The March 1 corn stocks estimate of 5,399 million bus was considered the most bearish number in the two reports. The number, though down 10% from March 1, 2012, was above the entire range of analysts’ pre-report forecasts and 7% above the average of those forecasts.

“The difference between the U.S.D.A.’s March 2013 (corn) stocks estimate ... and the average trade guess was about 370 million bus, one of the largest differences in the past 30 years,” Darrel Good, University of Illinois agricultural economist, said in his Weekly Outlook.

Early last week the trade still was trying to explain the large “miss” in their expectations. Some surmised that actual 2012 corn production may have been larger than the U.S.D.A.’s January estimate of 10,780 million bus, which fell well below early 2012 forecasts due to severe drought across the Corn Belt last year. But the cause for the miss most likely was related to overly-optimistic use estimates, which high prices clearly affected, and indirectly to difficulty in measuring on-farm storage of corn. The corn use picture is muddled even more because of increased feeding of wheat this year, but the March 1 wheat stocks number also was well above expectations.

The U.S.D.A. said estimated corn use during the December 2012-February 2013 period was 2.63 billion bus, down 27%, or almost 1 billion bus, from the same period a year earlier. Wheat use in the December-February period was 436 million bus, down 6% from a year earlier.

“Market participants form expectations for the quarterly stocks estimates based on the level of stocks at the beginning of the quarter and a projection of use during the quarter,” Mr. Good said. “Exports and domestic processing uses of corn during the quarter can be projected fairly closely. Surprises in the U.S.D.A. estimates, then, mean that feed and residual use during the quarter deviated from market expectations.

“The implied rate of feed and residual use of corn in the first half, and particularly in the second quarter, of the 2012-13 marketing year is quite low. The slow rate ... does not seem consistent with livestock numbers, a sharp reduction in the production of distillers’ grains and the implied negative feed and residual use of wheat during the same six-month period.”

By the close Monday, April 1, nearby May corn futures had plunged 93c a bu, or about 13%, in two trading sessions, to a nine month low of $6.42¼ a bu. Futures were down the 40c-a-bu daily limit following the report on March 28, then fell another 53c on April 1 as trading limits expanded to 60c after the limit move. Corn futures prices recovered some at midweek, but still were well below pre-report closes.

March 1 all wheat stocks estimate at 1,234 million bus was up 3% from March 1, 2012, and 6% above the average of trade expectations. Soybean stocks on March 1 were estimated at 999 million bus, down 27% from a year ago but 5% above the trade average.

“While not normally an issue, the March 1, 2013, soybean stocks estimate was also a surprise,” Mr. Good said. “The stocks estimate implies negative use in (the feed, seed and residual) category for the quarter.”

Wheat and soy complex futures mostly followed corn futures sharply lower on March 28 and April 1, but wheat prices rebounded strongly at midweek only to again fall with corn late last week.

The sugar beet situation

If there was a surprise in the plantings report it was sugar beets. The U.S.D.A. at its annual Agricultural Outlook Forum in late February forecast sugar beet planted area would fall about 9% in 2013 due to sharply lower sugar prices (down about 45% from a year earlier and at five-year lows) and strong prices for alternative crops, especially corn and soybeans. But the U.S.D.A. said growers intend to plant 1,211,100 acres of sugar beets in 2013, down only 1.5% from 2012 planted area. Only Nebraska, the sixth largest beet growing state, with a decrease of 14%, came in below the expected 9% average reduction forecast. Reductions in five other states ranged from 3% to 7%, intended plantings in two states were unchanged and two others showed increases from 2012, including North Dakota, the second largest beet growing state, with an increase of 4%.

Because of the prolonged cool and in some places wet weather, sugar beet growers still have time to switch to other crops (especially soybeans the later it gets), trade sources pointed out. Some expect final planted sugar beet acreage may decline considerably more than the 1.5% indicated in the Prospective Plantings report. The weather also may delay corn plantings or even prompt switching to soybeans in some cases.

The U.S.D.A. 2013 corn planting intention estimate of 97.3 million acres was up slightly from 2012 plantings and the highest since 102 million acres in 1936 but nearly equal with the average of pre-report trade expectations. The soybean planting number of 77.1 million acres was down slightly from 2012 and below both the range and the average of trade estimates. The all wheat planting forecast of 56.4 million acres was up 1% from a year earlier and also at the average of trade expectations, although winter wheat area was up 2% from 2012, durum was down 18% and spring wheat other than durum was up 3%, all three missing the average of trade expectations.

The U.S.D.A.’s annual Acreage report will be released June 28. Until then the trade must depend mostly on weekly crop updates and anecdotal accounts of how many acres of sugar beets, corn, wheat, soybeans and other crops farmers decide to plant. Some clarity to usage may be revealed this week in the April 10 World Agricultural Supply and Demand Estimates, which will incorporate the new March 1 grain stocks numbers.

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