Reaction to USDA’s quarterly Stocks Report, released last Thursday, was decidedly bearish. As SDSU Extension Commodity Marketing Specialist Lisa Elliot in a recent Profit Tips article, corn, soybean, and wheat stocks as of March 1 were well-above trade expectations, sending the corn market limit lower and soybean and wheat futures sharply lower as well. For livestock feeders and other corn buyers, that was welcomed news as many anticipated a bullish report that would further increase corn prices. While its important not to look a gift horse in the mouth, it’s also important for corn buyers to keep these numbers in perspective even as they have seemingly turned the trend towards lower prices for many weeks to come.
First, as Dr. Elliot also pointed out, March 1, 2013 corn stocks at 5.4 billion bushels, is historically low. Despite being almost 400 million bushels more than expected, it is about 624 million bushels (10%) less than a year ago. In fact, it is the smallest March 1 stocks inventory since 2004. Secondly, the proportion of total stocks being held in on farm storage (versus commercial storage) is much lower than normal for March 1, likely due to the reduced crop size last fall. As of March 1, 2013, farmers were storing 2.7 billion bushels of corn, or 49% of total corn stocks. A year ago, on farm storage accounted for 53% of total stocks. Back in 2004, when total stocks were smaller than this year, farmers were storing about 57% of all corn. This has important implications for livestock feeders: a larger proportion of total stocks already have moved into commercial marketing channels. Thus, livestock feeders may have to divert some corn away from other intended uses. Additionally, basis will likely have to rally in order to prompt additional farmer selling, especially given the sharp price decline following the report. Third, the increase in stocks, which implies a reduction in feed usage, came only about three weeks after USDA increased feed and residual usage by 100 million bushels in the March WASDE report. This led to expectations for a bullish stocks report and a very bearish reaction when implied feed usage was decreased. While this could provide the additional bushels to raise 2012/13 ending stocks from 632 million bushels upwards to 800-850 million bushels, it also is a reminder of how variable and unpredictable these reports have become. And, there are several more market-driving reports that will be issued before the new crop corn supply is available for feeding.