Market Advisor: USDA Reports Should Underpin Market

Reports released by USDA on Jan. 12 were supportive of wheat, corn and soybean prices. Wheat prices will benefit from fewer than expected winter wheat planted acres. Corn and soybean prices will be supported by the production and stock levels that were sharply below trade expectations. Prices for these crops and related ones will continue to be volatile but downside price risk should be limited.

The production and stocks reports resulted in significant changes to the 2003-04 balance sheets for corn and soybeans but not for wheat since the winter wheat acres will be reflected in the 2004-05 supply and demand reports. USDA will make supply and demand projections for 2004-05 beginning May 12.

Winter wheat planted acres for 2004 were 43.5 million acres versus trade estimates of 45.8 and 2003 acres of 44.9. In the large winter-wheat-producing states of Kansas, Oklahoma, Texas and Colorado, acres were down because of dryness, according to USDA. In North Dakota, 240 thousand acres were planted versus 130 thousand a year ago. U.S. winter durum acres (180,000) were down 27 percent from a year ago.

In the supply and demand report, wheat exports were increased by 25 million bushels to reflect the current stronger-than-normal export pace. The seasonal average farm price was increased by 5 cents at both ends of the range to $3.25-$3.45 per bushel. The smaller-than-expected winter wheat acres would suggest a similar average farm price could be expected for 2004-05 given steady spring wheat acres, trend yields and preliminary use estimates by the Food and Ag Policy Research Institute.

Exports were increased for hard red winter wheat, soft red winter wheat and hard red spring wheat. Domestic use was increased for hard red winter wheat but decreased for hard red spring wheat and soft red winter wheat. Total use was increased for hard red winter wheat, decreased for soft red winter wheat and left unchanged for the other classes of wheat.

World wheat production was increased but the use of wheat was increased even more, so that ending stocks were down slightly from last month. Ending stocks are now projected down 23 percent from a year ago.

For corn, production was below trade expectations by 183 million bushels and stocks were below by 256 million bushels, for a combined amount of 439 million bushels below expectations. In the supply and demand report, production was reduced by 164 million bushels from a month ago. Use numbers were revised upward by 75 million bushels for feed and residual, 30 million for food, seed and industrial, and 50 million for exports. Ending stocks were dropped by 318 million bushels which resulted in a stocks/use ratio of 9.6 percent (12.9 percent last month). The seasonal average farm price was increased by 15 cents at the low end of the range and 5 cents at the high end to $2.15-$2.45.

World coarse grain ending stocks were reduced by 5.5 million tons to 100.5 million tons. They are now projected to be down 30 percent from a year ago. However, increased corn exports from Brazil are expected to more than offset decreases from Argentina, and China’s corn exports were lowered by only 500,000 tons due to a suspension of new export sales.

Soybean production and stocks were also below trade expectations. Production was below by 33 million bushels and stocks were below by 64 million bushels for a combined total of 97 million bushels below expectations. In the supply and demand report, production was reduced by 34 million bushels from a month ago. In contrast to corn, total use was revised down instead of up since ending stocks were already at a minimal level of 125 million bushels. Within total use, exports were increased by 10 million bushels. The seasonal average farm price range was narrowed by 5 cents at both ends to $6.90-$7.60.

World ending stocks of soybeans for 2003-04 are not projected to be particularly tight. At 35.98 million metric tons, they were down from last year (38.74 million metric tons) but up from the year before (32.14 million metric tons). In addition, a record high level of world oilseed production is expected.

Soybean imports were left at a relatively low level, most likely due to concerns about rust, but very significant changes were made to soy oil and soy meal imports. Soy oil imports were increased from 46 million pounds last year and 85 million pounds in December to 235 million pounds in January. Soy meal imports were increased from 166 thousand tons last year and 340 thousand tons in December to 475 thousand tons in January. The soy oil average price range was increased from 26-29 cents per pound last month to 27.5-29.5. The soy meal average price range was increased from $215-$240 per ton to $225-$245.

The impact of large soy oil and soy meal imports, if they materialize, on the price for soybeans remains to be seen. Price increases could be tempered or prices could trade in a sideways pattern and even decrease once the South American crop comes on stream. Keep in mind that USDA left the mid-point of the price range unchanged.

Nearby soybean futures closed at $8.35 on Jan. 16. Recent nearby highs were $8.56 during July 1996 and $9.03 during May 1997.

A key factor determining where soybean prices go will be Brazil’s production and infrastructure. How large a soybean crop will they produce? Can their crushing, transportation and port system accommodate the production and demand in a timely manner? Time will tell.

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