There are always surprises, and the May USDA Supply-Demand report did not disappoint anyone. Even when you knew USDA was going to forecast a very large corn crop, the projection for 14.8 billion bushels and a 166 bushel national yield average were well over the top of expectations. Let’s take a survey and see what the experts thought about the numbers…
At Iowa State University, grain marketing specialist Chad Hart said the upward adjustment to old crop carryover was noteworthy, “Old crop feed demand was lowered 50 million bushels, based on alternative feed availability. That change put 2011/12 ending stocks at 851 million bushels, nearly 100 million bushels above trade expectations.”
In addition to the hike in old crop ending stocks, the new crop ending stocks will be quite large, but along with production and consumption, says Hart, “For the new crop, this report sticks with the planted acreage from the March Prospective Plantings report, but the yield for corn been adjusted by 2 bushels to reflect the rapid planting thus far. Corn production is projected at 14.79 billion bushels, another record crop projection. Feed, residual, and export demand are all expected to increase for the new crop. So we are looking at record demand as well. But the surge in supply is greater than the increase in demand and ending stocks are projected to increase by over 1 billion bushels. With higher stocks come lower prices and the midpoint of USDA’s 2012/13 season-average price range for corn is $4.60 per bushel, 40 cents lower than the unofficial estimates in February and $1.50 lower than the 2011/12 price.”
At the University of Illinois, marketing specialist Darrel Good says there are some problems in the way USDA downshifted livestock feed needs for old crop corn, then floored the accelerator for livestock feed needs from the new crop. Good says, “The projections for corn consumption during the current and upcoming marketing year continue to appear inconsistent. Feed and residual use appears under-stated for the current year and over-stated for next year. Prospective exports also appear under-stated for next year. On the production side, the USDA has started with very aggressive yield and production forecasts. It is not clear why 2011 was not included in the trend analysis of yields. Still a build-up in stocks appears likely next year and suggests prices will continue to moderate back to the levels of 2007-08 through 2009-10.”
Farm Futures market analyst Arlen Suderman was surprised by the quantum leap made by USDA from its projected 158 bushel yield last year to 166 this year, all in an effort to reach the 14.8 billion bushel production, “So how did USDA come up with the big increase? It used a 20-year trend yield, just as it did last year, adjusted for the early planting pace. However, this time it decided to exclude last year’s low yield of 147.2 bushels per acre when it calculated its trend yield. That provided the convenient increase that it needed. It’s not unusual for a statistician to exclude an outlier low number, but then they will also exclude an outlier high number as well. That is apparently not what USDA did this time.
Suderman also said that while many agencies are lowering the South American crops, USADA actually raised the estimate for the next soybean crop, “USDA surprised the trade by increasing Brazil’s corn crop by 5 mmt, but only increased Brazil’s exports by 1 mmt.”
Another big surprise is the USDA pushing new crop soybean carryout well below the 5% expected floor. The 145 million bushels on a 3.2 billion bushel crop represents a 4.4% stocks to use ratio. With higher expected prices, Hart says it would be the third consecutive year of setting a higher record price.