The June Supply and Demand Report held plenty of market moving information this week. The most important numbers of the report were in the corn supply and demand tables. There were no changes to the old crop supply and demand numbers, which at first blush may seem negative, but what it tells us it that USDA will likely be forced to increase the ethanol usage figure in the July Supply and Demand Report, because ethanol production has been much stronger than anticipated. For the new crop numbers the planted acreage was reduced by 1.5 million and the harvest acreage by 1.9 million. The June 30th Planted Acreage report should at the least confirm these numbers and possibly increase the reduction from the March Planting Intentions Report. What is important about the acreage adjustments is that it appears that USDA is getting an early start in warning the marketplace about potential problems with this year’s corn production that is being caused by late planting and flooding. The flooding will cause problems for weeks and months to come so there is the potential for further acreage adjustments because of it. Meanwhile, we still don’t have all the corn planted, which can impact both acreage and yield. Summer weather, as always, will be critical, but it will be even more so due to our lower acreage.
The other major change in the corn supply and demand numbers came in the world tables. World corn ending stocks were cut sharply from last month to 111.89 MMT. This is slightly higher than the 2007/2008 crop year, but will give us a stocks to use ratio not seen since the early 1970’s. There were numerous adjustments over numerous years to the Chinese supply and demand estimates, but the net result is that China is using more corn than previously thought and we don’t have nearly as much corn in the world as we once thought. The current stocks to use ratios in both the US and the world as a whole are all we need to justify the all time high prices we are seeing in the spot month futures. The July reached $7.99 ¾ on Friday, so $8.00 is obviously strong resistance, but the July of 2012 contract at $7.33 and the July of 2013 at $6.63 are looking a little cheap at this point.
Basis levels continue to improve and in some cases improve rapidly. If you have unsold corn in the bin you are in the driver’s seat right now. End users across the country are finding it more and more difficult to secure supplies. If you have unsold grain in the elevator you would be wise to check what the end users around you are bidding and compare that to what the elevator is willing to pay you. In many cases the “real” market is moving much faster than the elevators are.
Wheat futures didn’t fare nearly as well as the corn did and the supply and demand numbers were at least partially to blame for the July KW’s 46 cent loss. Old crop ending stocks were cut due to a surprising increase in the export estimate, but the new crop ending stocks weren’t cut as much as expected because of an increase in the yield estimate. Acreage was reduced a little because of the slow planting in the HRS country, but harvested acreage was reduced by an equal amount which does not account for all the abandonment in the HRW Belt or the flooding in the Mississippi and Missouri River valleys. Right now the supply and demand tables suggest we won’t have any supply problems at all in the coming year, which makes it very difficult to rally prices. I still think production will have to be cut in the future due to all the problems around the country, but right now USDA doesn’t think there is a problem.
Corn is trading premium to the soft wheat, which means we will be seeing more wheat in the feed mix and there is even talk of using soft wheat to make ethanol. That bullish world corn stocks to use ratio is going to benefit the wheat market at some point, because end users around the world are looking to substitutes for corn. The report was not friendly to the soybean. Both old crop and new crop ending stocks were raised. The old crop because of lower crush and the new crop because of lower exports. USDA is planning on more competition from the S. Americans for Chinese business, which is probably correct. Exports are still projected to be the second highest ever, so it is not a big drop off.
The problem is that the 190 million bushel new crop ending stocks estimate is plenty of beans to have on hand. When the supplies are plentiful it is difficult to rally. There is still a chance for a lower acreage estimate due to planting problems and flooding and yield is yet to be determined, so there is still a chance for the market to move higher, but with the current projections there isn’t much reason.
Cattle futures are still sideways. This week’s rally attempt failed at the end of the week. Right now it seems that poor economic news is weighing on the market and the boxed beef market can’t hold gains. If the beef can’t hold gains the cattle can’t either. The export market is still strong, but the domestic market seems to be the problem. It is often hard to rally the cattle in the summer anyway, so the bulls need to be patient and wait for our large supplies to be worked through. Eventually we are going to have tight supplies because so many cattle have been placed on feed early, but for now I guess we are in the summer doldrums in the cattle market.