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USDA released quarterly grain stocks Friday morning, showing USDA reported stockpiles more than 160 million bushels larger than expected, and more old-crop soybeans in storage than a year ago.
The data is seen as bearish for the trade, sources in the trade say. Namely, the corn number shows the rationing that traders and analysts said would have to take place has been realized, says trader and grain market analyst Don Roose with U.S. Commodities in West Des Moines, Iowa. Seven-dollar corn had a lot to do with that.
"Rationing is exactly what it says," Roose said Friday morning. "When you hit those big numbers on the upside, those $7 numbers, everybody took it seriously and started to prepare, especially when the government said prices would average in that $7 range."
Corn stocks are seen down 34% from where they were a year ago, while soybean stocks are 42% higher than last September, according to Friday's report. All wheat stocks are pegged 12% lower than a year ago.
Old-crop corn as of September 1, 2011, totaled 1.13 billion bushels, of which 315 million bushels is stored on farms, down 35% from a year ago. Old-crop soybeans, on the other hand, totaled 215 million bushels; 48.5 million of those bushels is stored on farms, a 37% increase over last September.
What drove the move toward higher corn stocks? Industrial and ethanol use didn't change much, so it boils down to feed usage, analysts say. Seven-dollar corn pushed a lot of livestock feeders away from that market, and those big prices likely account for the growth in corn stocks, says Jack Scoville, trader and analyst for Prices Futures Group in Chicago."Feed is the primary category influencing this stocks number. The export demand, we know, has been soft," he says. "I do know that a lot of the feed side of the market was looking at wheat and other commodities as much as they could trying to avoid the high cost of corn."The year-over-year difference in corn stocks was sharpened by the previous year's corn/feed dynamic, adds NARMS Futures Trading market analyst and trader Jerry Gidel. Feeders used a lot of new-crop corn last year to avoid the quality issues that were common in the previous year's corn on hand."People were anticipating that last year's number on stocks had some issues from the standpoint of feed usage -- there was a lot of poor-quality corn stored in elevators. We were using new-crop corn in the feeding system. They really wanted that quality," Gidel says. "The assumption was we were going to have a little better feed usage this year and more competition with wheat. In essence, here, we have a situation where both corn and wheat feed usage year-over-year have both been lower, so basically the commercial entity must have moved corn into their system early and didn't have to buy corn."
Moving forward, Roose says Friday's numbers now mean the trade will be focused directly on the harvest underway in the Corn Belt. How yields -- some of which have been surprisingly high in places like the western Corn Belt, especially for soybeans -- come in from the field will do a lot to dictate how long and to what extent the market trades these grain stocks numbers.
"You're going to listen to the combines and see what the yields are going to be. What this really does is takes the fear out of those yields on corn. If you look at it, even if you believe the last report that said we're going to have to ration 400 billion bushels, now, we have 200 billion bushels to ration. There's some breathing room."
Look for corn prices to stay in the $6 to $6.25/bushel range, Scoville says. At those price levels, the demand that's slackened in the last couple months as the market's hovered in the $7 range should start to pick up, lending some strength to the trade. "I've always been a $6 to $6.25 guy. I guess I still am. With everything we know, when we were talking about higher crop production projections than we are now, and lower ending stocks estimates than we have now, I always thought we could still hold $6. I guess I think that's still possible. I'm going to stick to that now," Scoville says. "I also tend to think there's a lot of pent-up interest out there, especially on the export side. A lot of buyers of U.S. corn have been waiting for this to happen. I think we'll see demand start to pick up. What wasn't profitable at $7 to $7.75 is a hell of a lot more profitable at $6."