9 July 2010

5 minute read

North America

Acreage and Grain Stocks: Looking Forward

Last week, Dr. Mark discussed the June 30 Acreage and Grain Stocks reports released by USDA. As was noted these reports indicated (a) more corn was used from March through May than anticipated and (b) less corn is likely to be produced during the 2010 growing season due to less than expected total acres of corn. Therefore, given this new information, it is safe to say that corn supplies will likely be reduced further than was projected in the June 10 World Agricultural Supply and Demand Estimates report (WASDE). The purpose of this week’s In The Cattle Markets is to discuss the possible implications to the corn balance sheet of this new information.

Using information in the Grain Stocks report, the 2009/10 demand for corn is likely to be larger than indicated in the most recent WASDE. During March, April and May, 3.384 billion bushels (bbu) of corn were removed from storage – including both on and off farm storage. This is 713,000 more bushels than the average amount removed during the same quarter the previous three years (2.831 bbu was the largest in 2008). Based on this, the amount of take-off from June through August would have to be approximately 2.72 bbu to remain at the 13.191 bbu of projected use in the June WASDE report. However, the typical amount of corn taken out of storage from June to August is just 267,000 less than what is removed from March to May. If this trend holds, that would put the amount of corn taken out of stocks at 3.117 bbu. Once carried into the corn balance sheet this implies that the level of use would be about 13.592 bbu, or 401 million bushels more than projected in the June WASDE. At this level of use, 2009/10 corn ending stocks would be 1.201 bbu and the stocks-to-use ratio would be eight per cent. Carrying the 1.201 bbu into 2010/11 and factoring in the new acreage number the total amount of corn available in the upcoming marketing year would be 14.455 bbu. With no other adjustments from what USDA published in June, the ending stocks for corn would be 1.045 bbu – assuming the same level of use for all reported sectors. This is summarised in table 1 below.

The estimate above for 2010/11 uses the June WASDE yield per acre estimate. There has been much speculation that due to the strong start to the growing season here in the US and the positive outlook for the crop, based on crop condition ratings, that the realized yield could be higher than currently projected. The table below also shows how the balance sheet would look if corn yields are five per cent above the current estimate – with some slight adjustments for use to reflect the impact of the larger crop. One the other hand, with wet weather looming in the Corn Belt, and of course any other damaging weather issues that may arise, we also show how the balance sheet would look if yields are five per cent below the current estimate – again, with some adjustments on the use side. This last scenario is quite grim – ending stocks of 743 million bushels and stocksto- use of 5.7 per cent – and may be a bit unrealistic since intense rationing might keep the level of use more tempered than we have shown. Still, it is important to keep in mind that unless we realize at least the current yield estimate, ending stocks will be reduced to levels that have not been experienced since the early 1990’s. As such price volatility will likely increase. For illustration purposes, figure 1 shows the relationship between the stocks-to-use ratio and the corn marketing year average price.

Table 1. Corn Balance Sheet from the June 2010 WASDE Incorporating Adjustments Based on 2010 Acreage and June 2010 Grain Stocks Reports

The Markets

Last week cash cattle were mostly flat as the 5-area live steer price was only $0.05/cwt above the prior week and dressed cattle steer prices were $0.50/cwt higher on the week. Boxed beef prices were higher for the second week in a row after a string of declining weeks. Choice beef carcases were at $155.32/cwt, a jump of $0.82/cwt from June 25, while Select prices were at $146.60 on the week, $0.36 higher than the prior week. Feeder cattle markets were forced to weigh the influences of higher fed and boxed beef prices while at the same time corn futures were soaring from the bullish USDA reports. For the most part, not unexpected, the lighter the weight group the bigger the impact of the corn market. Omaha cash corn prices rose $0.20/bu as compared to a $0.23 ½ jump in nearby July corn futures over the week. The more distant December harvest contract rose $0.24/bu week over week. Distiller’s grain prices were down on the week.