Here is a sobering assessment of corn supplies.
Based on production forecasts released by the United States Department of Agriculture last week, at the end of the 2007-08 crop year the U.S. will have 19 days supply of corn.
That’s not much wiggle room and it highlights the potential for volatility in corn prices this year, a volatility that will likely wash over into other crops.
But the USDA’s forecast, presented at its annual outlook conference last week, did not raise grain prices.
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Traders across all markets concentrated instead on worries about a cooling American economy and the possibility of China implementing policies to slow inflationary growth.
The worries hit equity markets the hardest, but commodities also fell, including grain.
The scant attention paid to the USDA outlook was not surprising, given that its forecasts were well within the realm of market assumptions about the 2007-08 crop year.
Still, its early stab at predicting acreage, yield, production and ending stocks helped flesh out what we can expect.
USDA sees 87 million acres seeded to corn, up 8.7 million from last year. That is expected to produce a crop of 12.195 billion bushels, up 1.66 billion bu. from 2006 and 388 million higher than the current record set in 2004.
But total use is expected to climb five percent to a record 12.325 billion bu.
Use will exceed production, meaning that year end stocks will fall by 115 million bu. to 637 million or, as stated, a 19 day supply.
The stocks-to-use ratio is projected at 5.2 percent, down from a projected 6.4 percent for the current year and down from 17.5 percent in 2005-06.
Soybean production for 2007-08 is projected at 2.88 billion bu., 10 percent below last year’s record crop. Planted acreage is projected at 70.5 million acres, down five million from last year’s record.
Wheat production in 2007 is expected to increase 20 percent to 2.17 billion bu., driven by a rebound in yield following last year’s drought in the Great Plains and more harvested area.
But the USDA might be conservative in its estimate for corn.
Allendale, a large U.S. brokerage firm, surveyed farmers and predicted last week that corn area would rise to 90.76 million acres, 3.76 million more than USDA figures.
The extra corn area would come out of soybeans. Allendale forecast 65.9 million acres of the oilseed, 4.6 million less than USDA’s figure.
Allendale’s wheat area was similar to USDA’s.
What actually gets planted will depend a lot on weather. Soil moisture is near ideal in most of the U.S. Midwest.
But if the moisture keeps coming and delays planting, then acres would shift from corn to soybeans, which can be planted later.
While so much focus is on the
U.S., developments elsewhere indicate 2007-08 might be a highly competitive world market.
On the oilseed front, Brazil’s crop might be better than expected, with at least one corporate analyst, Celeres, pushing its crop estimate to 58 million tonnes from 57 last month. Oil World raised its Argentine soybean forecast to 44.5 million tonnes, up one million from the last assessment. Overall, Oil World sees South American production at 109 million tonnes, up six million tonnes from last year.
This will provide more competition to U.S. soybeans and will weigh on soybean prices, keeping the balance in corn’s favour as seeding approaches.
Most winter crops in the European Union, Russia and Ukraine look good so long as a late winter deep freeze doesn’t hammer them.
That might have occurred in northern China where snow and below freezing temperatures might have damaged some winter wheat on the weekend of March 3-4. But the storm also delivered much needed moisture to other wheat growing regions.
As of March 5, there was no clear indication whether the damage was significant.
