USDA’s January 12, 2007 World Agriculture Supply and Demand Estimates (WASDE), Grain s Stocks, and Crop Production reports provided surprises for the corn market with production and ending stocks projections below the ranges of pre-report trade estimates. Soybean and wheat ending stocks projections were much closer to trade expectations. Winter wheat planted acres for 2007 are up 9% from 2006.
USDA trimmed 2006 corn planted and harvest acres along with reducing yield by 2.1 bpa. This resulted in an average corn yield of 149.1 bpa and total 2006-07 production of 10.535 billion bushels. Although this remains the third largest crop, the production total is below the pre-report range of trade estimates and 210 million bushels less than the previous estimate of 10.745 billion bushels. Feed use and corn sweetener use were reduced a total of 80 million bushels, but 2006-07 exports were increased by 50 million bushels reflecting the strong export pace. The net effect was a reduction in total expected use of 30 million bushels. Projected ending stocks were reduced 183 million bushels and are estimated at only 752 million bushels, suggesting corn supplies could approach “pipeline“ levels and a sharp contrast to the abundant supply situation less than two years ago. World corn ending stocks will also shrink, due largely to reduced U.S. supplies and downward adjustments in carryover for Brazil and Europe. USDA’s 2006-07 projected corn price range was increased by 10 cents, now expected to range from $3.00 to $3.40.
USDA decreased average 2006 soybean yields from 43.0 to 42.7 bpa, resulting in total production of 3.188 billion bushels. While this was within the range of pre-report trade estimates, most expected a small increase in production instead of a decrease. Soybean 2006-07 export estimates were reduced 25 million bushels. The net result of the supply and use adjustments was a 10 million bushels increase in expected carryover. Soybean ending stocks remain at record levels with 575 million bushels, which was near trade expectations. USDA narrowed the 2006-07 soybean expected price range by five cents on each end and prices are now expected to range from $5.75 to $6.45.
Adjustments to wheat imports (increased 10 million bushels) and 25 million bushels reduction in exports, along with a minor adjustment to seed use, resulted in 2006-07 wheat ending stocks of 472 million bushels. This is up 34 million bushels from the previous USDA estimate, but near trade estimates. No adjustments were made to wheat price estimates, still expected to range from $4.15 to $4.45.
Winter wheat seedings for 2007 of 44.089 million acres are increased 9% above the 2006 acreage. Soft Red Winter (SRW) wheat acreage is up almost 1 million acres at 8.330, which is 13% more than last year’s 7.385 million acres. This increase in SRW wheat acreage represents acres not likely to be available for increased corn production in 2007.
“The market is always right!“ This is an old market saying that suggests the factors affecting the markets may not always be obvious, but price action will sort them out to arrive at a price that balances supply and demand. Recently it has been hard to explain why nearby corn futures contracts were priced higher than distant month contracts for 2007 production. Supplies from the third largest crop appeared adequate to meet demand needs and the major concern appeared to be getting enough acres to insure adequate production in 2007.
More production will be essential in 2007, but today’s much tighter 2006-07 corn supply projections suggest that once again the market may have been “right“ with the price premiums for nearby corn futures contracts.
Higher prices were expected following the USDA reports and in early trading nearby corn futures were up the 20 cent limit. Double digit gains were occurring in wheat and soybean futures prices were near 30 cents higher. The tight corn supply situation appears to put the market bulls back in charge. The market will also be looking closely for clues about 2007 acreage with the need for significantly increased corn production in the year ahead.