Corn & Seed/Oil Commodities

[Mustang Sally Farm]

Feed Outlook - December 2011
World 2011/12 corn production is forecast up 8.5 million tons this month to a record 868 million tons, mostly due to a large increase in China's production based on recently published government estimates, according to Tom Capehart and Edward Allen in the latest report from the USDA Economic Research Service.

 

Summary
World 2011/12 corn production is forecast up 8.5 million tons this month to a record 868 million tons, mostly due to a large increase in China’s production based on recently published government estimates. Global ending stocks are boosted six million tons to 127 million, down just one million from the previous year.

US feed grain supplies are increased slightly this month due to an increase in forecast oats imports from Canada, where supplies are plentiful. Expected corn use is down five million bushels due to reduced prospects for use in sweeteners. These changes are reflected in higher ending stocks. Sorghum export prospects are reduced due to very slow export sales, and feed and residual is raised. Forecast prices received by farmers are lowered for corn, sorghum, and barley.


DOMESTIC OUTLOOK

Feed Grain Use Slips on Lower Food Seed and Industrial Use
Forecast US feed grain supplies are edged upward, reflecting an increase in expected oats imports due to larger supplies in Canada and the strong pace of US imports in recent months. US feed grain supplies for 2011/12 are forecast at 357.6 million tons, compared with 380.5 million in 2010/11. Imports are forecast at 2.2 million tons, slightly higher than last month’s forecast. Production is unchanged this month.

Forecast US feed grain use is lowered slightly to 333.5 million metric tons. Lower forecast corn food, seed and industrial use accounts for the fractional decline.

Feed Use
On a September-August marketing year basis for 2011/12, US feed and residual use for the four feed grains plus wheat is projected to total 126.5 million tons, up slightly this month due to increased sorghum feed and residual use. Corn is expected to account for 92 percent of feed and residual use, compared with 94 percent last year.

The projected index of grain-consuming animal units (GCAU) in 2011/12 is 93.3 million units, virtually unchanged from last month and slightly higher than last season’s 92.9 million. Feed and residual per GCAU is estimated at 1.37 tons, compared with 1.39 tons in 2010/11. In the major index components, GCAUs are increased this month for cattle on feed and lowered for broilers.

Forecasts for US beef and turkey production are unchanged this month but broiler production is forecast lower, largely due to slower expected growth in average bird weights in the first part of 2012.

USDA’s November Cattle on Feed report indicated October placements in feedlots were one per cent below a year earlier but one per cent ahead of September placements. Cattle and calves on feed for slaughter in the United States in feedlots with capacity of 1,000 or more head totalled 11.9 million head on 1 November 2011. The inventory was four per cent above 1 November 2010. This is the second highest inventory on 1 November since the series began in 1996. Higher feed demand is expected despite high feed prices but lighter cattle weights may reduce some of the impact from the larger inventories.

This month, pork production was forecast higher as slightly higher carcass weights are expected. Federal-inspected average dressed weight of hogs in October was up slightly from September and up from 2010. Pork production was raised slightly for both 2011 and 2012. Higher feed costs are anticipated to moderate the increase in carcass weights by mid-2012.

Milk cow inventory on farms in the 23 major producing states was 8.48 million head, 111,000 more than October 2010, and 10,000 more than September 2011. Production per cow in the 23 major states averaged 1,787 pounds in October, 20 pounds above October 2010. Feed use for dairy is expected to advance slightly through mid-2012 as cow numbers and production per cow continue to increase. Milk production forecasts for 2011 and 2012 are raised slightly, reflecting higher growth in milk per cow and slightly higher cow numbers in 2012.

Corn Price Lowered
The forecast US corn price received by farmers for 2011/12 is reduced by $0.30 per bushel on both the high and low end of the range to $5.90 to $6.90 per bushel, reflecting recent market trends and abundant foreign supplies of corn and feed quality wheat. The season average price received by farmers in 2010/11 was $5.18 per bushel. Food, seed and industrial (FSI) use is lowered five million bushels due to lower expected first-quarter use for high fructose corn syrup (HFCS) due to the reduced export pace in recent months. The change in FSI is reflected in an increase in ending stocks to 848 million bushels, compared with last month’s 843 million. Total use is forecast at 12,605 million bushels, compared with 13,054 million in 2010/11.






Sorghum
Forecast 2011/12 US sorghum exports are lowered 20 million bushels, reflecting slowing year-to-date sales and shipments. Feed and residual use is raised by the same volume, leaving ending stocks unchanged.

Reflecting the lower corn price forecast this month, the projected sorghum price received by farmers for 2011/12 is also reduced $0.30 per bushel on both ends of the range, resulting in a forecast of $5.70 to $6.70 per bushel. The season average price received by farmers in 2010/11 was $5.02 per bushel.

Minor Changes for Oats and Barley
Forecast 2011/12 US oats imports are raised five million bushels to 95 million, reflecting abundant supplies in Canada due to a large crop and the strong US import pace in recent months. The increase results in higher projected ending stocks.

The projected range for 2011/12 oats prices received by farmers is narrowed $0.05 per bushel on each end to $3.20 to $3.60 per bushel. The season-average price received by farmers in 2010/11 was $2.52 per bushel.

There are no supply and use changes for barley this month. Forecast grower prices were reduced $0.25 on the upper end of the range and $0.15 on the lower end, for a 2011/12 forecast of $5.20 to $5.80 per bushel. The price reduction mostly reflects lower-than-expected malting barley prices to date. The 2010/11 season average farm price for barley in 2010/11 was $3.86 per bushel.


INTERNATIONAL OUTLOOK

Large Corn Crop in China Boosts Global Production
World 2011/12 coarse grain production is projected up 9.4 million tons this month to a record 1,145.2 million, mostly due to higher corn production reported for China. Foreign corn production is up 8.5 million tons to 554.8 million, foreign sorghum production is increased 0.6 million to 55.3 million, and foreign barley and oats production are each boosted 0.1 million tons to 129.9 million and 22.0 million, respectively.

China’s National Bureau of Statistics released estimates of national corn production this month, many months earlier than usual and with provincial detail for total grain. Both area and yield are increased from earlier projections, boosting 2011/12 production 7.25 million tons to a record 191.75 million. Area is up 0.2 million hectares this month to 33.4 million, a three per cent increase from the previous year. China’s corn area has increased for eight consecutive years. Good returns for planting corn have supported corn replacing other crops, especially soybeans.

The provincial data indicate strong area expansion in Inner Mongolia and Heilongjiang, the northern and western edge of corn production in China. Rainfall and temperatures through the growing season were mostly favourable, supporting record corn yields, up three per cent this month to 5.74 tons per hectare, and five per cent higher than a year ago. Satellite imagery, rainfall and temperature data confirm good crop conditions through the growing season in most areas, though there was dryness in Heilongjiang and some other parts of the Northeast during the late summer and fall. An overview of growing conditions for corn in China for 2011 indicates good but not exceptionally favourable, rainfall and temperatures. However, it is exceptional that a country as large as China had no corn areas with significant floods or drought.


The European Union (EU) corn crop is up 1.0 million tons this month to a record 63.9 million, as several countries revised production estimates based on harvest reports. The largest increase was reported for Romania; Bulgaria, France and Spain also had significant increases; Italy and the Czech Republic had small increases; and Hungary had a decline. Corn yields for the EU are record high, with favourable rains during key growth stages in most countries, with the exception of Hungary, which suffered from dry conditions. Serbia (not part of the EU but Hungary’s neighbour) also reported a slight reduction in corn production this month.

Canada’s corn production is up 0.7 million tons this month to 10.7 million. Statistics Canada published a production estimate based on harvest results that showed better yields than earlier expected. The delayed development of the crop caused by cool wet conditions in most of Ontario did not hurt corn yields as much as expected but the yield remains down eight per cent from the previous year’s record.

Corn production in Belarus is forecast down 0.4 million tons to 1.2 million this month as less-than-record yields are confirmed by government reports. Area and production remain at record levels.

Brazil reported larger sorghum area and production for both 2010/11 and 2011/12. Sorghum is used in parts of the Center-West of Brazil as a “cover crop” to protect soils from exposure to the sun during the dry season, and area is being maintained despite the relatively low grain yields. Sorghum production is raised 0.5 million tons for both years, to 2.2 million for 2011/12 and 2.3 million for 2010/11.

Australia’s sorghum production projected for 2011/12, still being planted, is up 0.2 million tons this month to 2.4 million. Good soil moisture and prices support area and yield prospects. However, for South Africa, sorghum production is cut 0.1 million tons to 0.1 million as area being planted is reported down significantly. South Africa’s barley yield prospects are slightly higher this month.

Australian yield reports boosted barley production 0.3 million tons to 8.5 million while increasing oats fractionally and reducing corn slightly. Statistics Canada reported lower barley yields, trimming production 0.1 million tons to 7.8 million but oats area was increased, boosting production 0.1 million to 3.0 million. There are also small reductions this month for Morocco’s barley and Mexico’s oats.

Reduced Beginning Stocks Partly Offset Increased Production
World coarse grain beginning stocks for 2011/12 are down 1.9 million tons this month to 166.2 million, partly offsetting the 9.4-million ton increase in production. Barley stocks are cut 0.8 million tons to 25.4 million, corn stocks are reduced 0.8 million to 128.3 million, rye stocks are trimmed 0.2 million tons to 1.8 million, and oats and sorghum are reduced slightly.

The Australian Bureau of Statistics revised 2010/11 barley production down significantly, cutting 2011/12 beginning stocks 1.2 million tons to 1.1 million. Instead of building barley stocks during 2010/11, as previously expected, Australia is now estimated to have reduced stock-holding. The drop in Australia’s 2011/12 barley beginning stocks more than offset a 0.3-million-ton increase for Belarus and small increases for Brazil, South Africa, and China.

South Africa’s corn beginning stocks for 2011/12 are down 0.8 million tons this month to 2.8 million, as the previous year’s production is estimated lower based on actual deliveries to market and estimated farm use and stocks retained by producers. Small increases for Belarus and Australia and a reduction for Argentina are comparatively insignificant. Rye stocks are reduced mostly for Belarus and Russia, oats are reduced slightly in Belarus and Australia, and sorghum is reduced in Australia and Mexico but raised in Brazil.

Global Coarse Grain Use Projected Higher
World coarse grain consumption for 2011/12 is forecast up 1.9 million tons this month to 1,150.7 million tons. Feed and residual use is projected up 2.1 million tons to 662.9 million, but food, seed and industrial use prospects are reduced. Most of the increased forecast use is corn and sorghum, with reductions for barley, oats and rye.

The largest increase in coarse grain use this month is for corn in China, with the 2011/12 feed and residual use increased 2.0 million tons to 134.0 million. Corn prices in China remain relatively high despite the very large harvest, evidence of strong demand. With the larger crop, corn use in Canada is boosted 0.5 million tons to 11.5 million, with 0.3 million of the increase in feed use and 0.2 million in food, seed and industrial use. Reductions in expected corn use in Belarus, the United States, South Africa and Australia are partly offsetting.

Global sorghum use for 2011/12 is projected up 0.6 million tons to 62.1 million, with increased feed use more than offsetting a small decline in food, seed and industrial use. Brazil’s feed use is up 0.5 million tons, almost the same as the US increase. Partly offsetting are decreases for Mexico, down 0.3 million tons, where sorghum is reportedly being replaced by imported wheat, and for South Africa, with reduced production prospects expected to limit food use.

Barley feed use in Ukraine is reduced 0.5 million tons to 2.9 million. With abundant supplies of other grains that can be used for feed, barley stocks are not expected to decline in 2011/12, so projected use was trimmed to meet stock expectations. Australia’s barley feed use is projected 0.1 million tons lower this month to 3.4 million due to tight beginning stocks and ample feed-quality wheat supplies. These decreases in barley feed use are partly offset by increased feed use projected for Belarus, up 0.2 million tons to 1.4 million tons due to increased supplies.

Oats use in 2011/12 is forecast lower this month for Canada, Belarus, and Mexico; rye use is projected lower for Russia, Belarus and the United States.

Global Coarse Grain Ending Stocks Prospects Increased but Still Tight
World coarse grain ending stocks for 2011/12 are up 5.5 million tons to 160.7 million, mostly due to increased corn stocks in China. China’s corn ending stocks are up 5.3 million tons to 57.0 million because the bumper crop is expected to facilitate the holding of corn as a hedge against future price increases. Other increases in corn ending stocks are for the EU, up 0.5 million tons due to the record corn crop; Serbia, up 0.4 million because of problems moving exports with low water on the Danube; and Canada, up 0.2 million due to increased production. The United States and Australia had smaller increases. Partly offsetting are reductions for South Africa, down 0.7 million tons due to reduced supplies and for Belarus and Argentina down by smaller amount.

World barley ending stocks are reduced 0.3 million tons to 22.6 million, with reductions for Russia (-0.4 million tons), Australia (-0.4 million), Argentina (-0.2 million), Canada (-0.1 million), and Morocco (small increase) more than offsetting increases projected for Ukraine (+0.5 million), Algeria (+0.2 million) and Belarus, South Africa and Brazil (small increases).

Oats ending stocks in Canada and rye ending stocks for Russia are each increased 0.1 million tons for 2011/12, accounting for most of the changes in global stocks for those grains. Changes in projected sorghum ending stocks are small, with declines for Australia, Mexico, South Africa and Japan, but an increase for Brazil.

World Corn Trade Prospects Reduced Slightly; US Exports Unchanged
Global corn trade projected for 2011/12 (October-September) is reduced 0.4 million tons this month to 94.0 million. EU corn import prospects are reduced 0.5 million tons to 3.0 million because of increased production and the slow pace of import licences. Serbia’s corn export prospects are cut 0.4 million tons to 1.6 million as low water in the Danube River has complicated logistics for moving grain, and slack EU import demand reduces the urgency of shipments and limits the willingness of importers to pay extra for alternative freight.


US corn exports for 2011/12 remain projected to reach 41.0 million tons (1.6 billion bushels for the September-August local marketing year). While US exports for October 2011 were reported by Census down eight per cent from a year earlier at 3.2 million tons, the November corn export inspections reached 3.8 million, an increase of 0.5 million tons over a year ago. As of 1 December 2011, outstanding sales were 12.8 million tons, up three per cent from the previous year. The 2011/12 forecast is down nine per cent from 2010/11, implying a significant slowdown in additional sales and shipments. Tight US corn supplies, relatively high US corn prices and competition from abundant feed-quality wheat in foreign markets are expected.

US sorghum exports for 2011/12 are reduced 0.5 million tons to 1.9 million – down 20 million bushels to 70 million for the September-August local marketing year. US sorghum supplies are tight because of a small crop, limiting export sales. As of 1 December 2011, outstanding sales reached only 187,400 tons, down from 720,700 a year ago. Prospects for an increase in sorghum sales seem limited as Mexico has turned to cheaper wheat to replace sorghum imports. Mexico’s sorghum imports for 2011/12 are reduced 0.3 million tons this month to 1.8 million. Australia’s sorghum export projection is increased 0.2 million tons to 1.2 million as a larger crop combines with prospects for a stronger share of Japan’s sorghum imports.

The five-million-bushel US oats import increase for the June-May 2011/12 local marketing year was due to strong shipments for the period July to September and is reflected in the 2010/11 October-September international trade year. With increased production this month, Canada’s oats export prospects for 2011/12 are increased slightly.

World barley trade for 2011/12 is projected slightly higher this month due to an increase in import demand from Algeria, doubling to 0.5 million tons this month. With a smaller crop, Australia’s barley export prospects are reduced but exports for Russia and Argentina are increased because of strong sales.



December 2011

[Mustang Sally Farm]

Oil Crops Outlook – December 2011
Based on higher competition and uniformly disappointing sales, USDA lowered its 2011/12 forecast of U.S. soybean exports by 25 million bushels this month to 1.3 billion.

Domestic soybean crush is also forecast down this month—by 10 million bushels to an 8-year low of 1.625 billion. Thus, U.S. season-ending stocks are seen edging up to a 5-year high of 230 million bushels from 215 million last year. The 2011/12 average farm price is forecast by USDA down to $10.70-$12.70 per bushel from $11.60-$13.60 per bushel last month.

Given heavy shipments of soybeans from Brazil this fall, USDA raised its 2011/12 export forecast for the country to 38.5 million metric tons from 38 million last month. For the EU-27, forecasts of 2011/12 imports were lowered to 12.3 million tons for soybeans and 22.6 million tons for soybean meal as a more abundant and inexpensive supply of feed wheat there suppresses soybean meal use.


DOMESTIC OUTLOOK
Drop in U.S. Export Sales of Soybeans Portends Higher Ending Stocks, Lower Prices
U.S. export sales and shipments of soybeans for 2011/12 have been disappointing. According to USDA’s Export Sales report, soybean shipments through December 1 were down by one-third from a year earlier. There is little optimism for an improvement in the pace of upcoming shipments as the year-to-year decline for the outstanding sales is about the same. USDA considered that evidence in lowering its 2011/12 forecast of U.S. soybean exports by 25 million bushels this month to 1.3 billion. If realized, this would be only the second year ever that U.S. soybean exports are surpassed by shipments from Brazil. Although China accounts for a large part of the lost sales, it is not the only import market where U.S. sales have slipped. Sales commitments to the European Union (not long ago the top market for U.S. soybean exports) have collapsed by 75 percent this season.

In addition, the forecast of the domestic soybean crush is lowered this month by 10 million bushels—to an 8-year low of 1.625 billion. The estimated crush for September-October 2011 may have already fallen off by 25 million bushels against the 2010/11 pace (which totaled 1.648 billion bushels for the complete marketing year). Higher estimates of the extraction rates for soybean meal and soybean oil are seen satisfying current demand for both products at a lower rate of soybean crushing.

The expected reduction in soybean demand for 2011/12 would now exceed the decline in the supply. Consequently, season-ending stocks are seen edging up to a 5-year high of 230 million bushels from 215 million last year.

A dimmer demand outlook has pressured the price of soybeans to its lowest level in a year. In November, U.S. farmers received an average soybean price of $11.50 per bushel, down from $11.70 per bushel in October and $12.20 in September. Price direction for the next several months may hinge on how well the new crop in South America develops. The crop-year average farm price is forecast by USDA at $10.70-$12.70 per bushel, compared to last month’s forecast at $11.60-$13.60 per bushel.


Setbacks for U.S. Poultry Sector Undermine Prospects for Domestic Soybean Meal Use
This month, USDA lowered its forecast of domestic soybean meal use by 150,000 short tons to 30.1 million, down from the 2010/11 estimate of 30.3 million. This decline is primarily associated with adverse economic conditions for the broiler chicken industry. This sector, which uses more soybean meal than producers of any other meat animals, is suffering from high feed costs and poor consumer demand. The ratio of a broiler chicken’s value to its feed costs this year is the lowest since 1983. That explains a declining rate of broiler egg hatching and chick placements this fall. Year-to-year reductions in U.S. broiler chicken production are expected to exceed 5 percent in the fourth quarter of 2011 and 4 percent for the next 3 quarters.

Conditions for U.S. hog producers are better. Modest production growth is anticipated for hogs over the next year, although it may not compensate for the loss of soybean meal consumption by broiler chickens. Feed demand for soybean meal will also be constrained this year by higher supplies of other proteins, particularly canola meal.

Also, U.S. export sales of soybean meal on December 1 were down 12 percent compared to a year earlier. For 2011/12, a decline in soybean meal exports to 8.8 million short tons is expected from 9.1 million last year. Subdued demand in both domestic and foreign markets has pushed down central Illinois prices for soybean meal to a 3-year low in November, with the average price declining to $290 per short ton from $301 in October. The season-average price for soybean meal is forecast lower this month to $280-$310 per short ton compared to $310-$340 last month.


High Soybean Oil Prices Deter U.S. Export Sales
Despite this month’s reduction for the expected 2011/12 soybean crush, the impact on this year’s soybean oil supply is offset by a higher forecast of the soybean oil extraction rate. Total output of soybean oil for the season is forecast 100 million pounds higher this month to 18.77 billion pounds, which would be only 0.6 percent below last year’s production.

Even though U.S. soybean oil prices have come down this fall—declining to a November average of 51.4 cents per pound from 51.7 cents in October and 55.1 cents in September—prices have been uncompetitive with both South American soybean oil and palm oil from Southeast Asia. USDA trimmed its 2011/12 soybean oil export forecast by 100 million pounds this month to 1.4 billion. As of December 1, U.S. export sales of soybean oil were down 82 percent from a year earlier with the pace of shipments at an 11-year low. Much of the reduction stems from an absence of purchases from China, but buying by more traditional importing countries (such as Mexico) has also been sluggish. Higher output and reduced export demand for soybean oil is seen supporting U.S. season-ending stocks at 2.28 billion pounds, which is 200 million pounds above last month’s forecast.

This month, USDA scaled down its forecast range for the 2011/12-average soybean oil price by 2.5 cents to 50.5-54.5 cents per pound. Later in the marketing year, domestic prices should derive some support from declining production and steadily increasing domestic use.


INTERNATIONAL OUTLOOK
Larger Soybean Crops Seen for India and Canada but China’s Output Declines
Global soybean production for 2011/12 is forecast up slightly this month to 259.2 million metric tons as higher crop estimates for India and Canada offset a reduction for China. With higher inventories expected for the United States and India, global ending soybean stocks are forecast up nearly 1 million tons this month to 64.5 million.

Indian farmers are estimated to have harvested a record 11 million tons of soybeans this year on an all-time high of 10.3 million hectares. This month’s 400,000-ton increase in the crop was based on better-than-average soybean yields, as moisture was ample throughout the growing season.

But market demand lacks strength and most of the additional Indian soybean supply is expected to boost the level of carryout stocks. Soybean demand by Indian crushers could be steady this year because of a more competitive international trade in soybean meal. The processing season has already started slowly, with Indian exports of soybean meal for October-November 2011 down 27 percent from a year earlier. USDA expects Indian meal exports for the entire season to fall 9 percent to 4.2 million tons. However, the impact of weaker exports of soybean meal could be tempered by strong domestic use, as broiler chicken production in India is seen expanding by 10 percent in 2012.

In Canada, this year’s production of soybeans is estimated at 4.25 million tons, improving by 9 percent from last month and slightly below last year’s record of 4.35 million tons. Soybean yields in Canada were below last year’s record but harvested area increased 4 percent from 2010 to an all-time high 1.5 million hectares. Most of the country’s soybean crop is produced in Ontario, where rainfall was well above average this year. Soybean exports from Canada are still expected to dip 2 percent in 2011/12 to 2.9 million tons, although the improved supply provides more support. Soybean crushing may decline by 3 percent this year (to 1.3 million tons), as processors in Canada have market conditions just as dismal as their U.S. counterparts.

China’s soybean harvest for 2011 is estimated 500,000 tons lower this month to 13.5 million. The country’s soybean area did not reach previous expectations as more corn was sown than earlier thought. Based on official sources, farmers in China are estimated to have harvested 7.65 million hectares—600,000 below the previous estimate. Recent crush margins for soybeans in China have not been that good. Domestic demand for soybean meal has moderated and there isn’t much basis this year for an expansion of exports from China. USDA was prompted by this situation to trim its 2011/12 crush forecast for China by 500,000 tons this month to 60.1 million. Soybean imports for China this year are unlikely to be affected by the reduced domestic supply, leaving the forecast unchanged at 56.5 million tons.


Seasonally Strong Competition from Brazil, Slow EU Demand Dampen U.S. Soybean Trade
It is quite unusual this late in the calendar year for soybean export prices from Brazil to be trading at a discount to U.S. Gulf prices, but those are the current circumstances. Due to a record level of old-crop stocks in Brazil, soybean exports are still streaming out of the country. Brazil’s soybean exporters shipped a record 3.2 million tons in October-November 2011. In particular, soybean shipments from Brazil to China expanded by 1.5 million tons from a year ago (a nearly eight-fold increase). By February, the shipments will start a seasonal increase. On account of these factors, USDA raised its 2011/12 forecast of Brazil soybean exports by 500,000 tons this month to 38.5 million.

Outside of China, import demand for soybeans is anticipated to grow more slowly, so there isn’t any good alternative for U.S. exports. EU-27 imports of soybeans and soybean meal have been particularly anemic. The use of soybean meal is being suppressed in Europe by a more abundant and inexpensive supply of feed wheat. Processing margins are also much better for sunflowerseed. In addition, demand for all livestock feeds is being dampened by the current economic upheaval in the EU-27. Forced by a declining value of their government bond holdings, European banks have needed to shore up their capital reserves by tightening lending. Rising borrowing costs are slowing activity there for all types of processing and trading enterprises, including those involved in agricultural products. USDA lowered its 2011/12 forecast of EU soybean imports by 300,000 tons this month to 12.3 million and down from 12.5 million in 2010/11. Likewise, a lower forecast of EU-27 soybean meal consumption drops expected imports for 2011/12 by 400,000 tons to 22.6 million.


Canada’s Record Canola Harvest May Push Domestic Crush and Exports Up to All Time Highs
The 2011 canola harvest in Canada has exceeded previous expectations and is estimated 1.3 million tons higher this month to a record 14.2 million. Planting last spring was delayed by excess soil moisture, but farmers were still able to harvest a record area of 7.5 million hectares. Once sown, most canola fields thrived on the ample moisture, although the crop in Manitoba was generally impaired by the late start. The national crop estimate was raised based on higher estimates of acreage and yields for Saskatchewan and Alberta. Canola yields in Canada were below the record high of 2 years ago, but it was the fourth-consecutive year of above-average yields.

According to the Canadian Oilseed Processors Association, the country’s canola crushers were setting a record pace for August-November 2011 (2.07 million tons). Exports of canola seed are also off to a strong start and are expected to climb to 7.45 million tons versus 7.2 million in 2010/11. The major export markets for Canada are China, Japan, Mexico, and the United States. Despite stronger canola demand in Canada, season-ending stocks are seen 9 percent higher this year to 1.9 million tons.

For China, rapeseed imports for 2011/12 are forecast 300,000 tons higher this month to 1.2 million. These will be encouraged by the country’s smaller domestic crops of rapeseed and soybeans and recent capacity expansion for plants that can crush rapeseed. Since 2009, China has restricted crushing of imported rapeseed to areas of the country that do not grow the crop in order to avoid introduction of a crop disease that is common in Canada.


Indonesian Change of Export Tax Policy Upsets International Palm Oil Trade
This fall, the Government of Indonesia halved its maximum export tax on refined palm oil to 10 percent, while the tax on crude palm oil was reduced only slightly to 22.5 percent. In addition, the maximum export tax on biodiesel was reduced from 10 percent to 7.5 percent. The substantially wider differential in tax rates is designed to promote domestic refining of the oil, including downstream industries such as biodiesel producers. That change could alter the composition of Indonesia’s palm oil exports. In recent years, more than 60 percent of Indonesia’s palm oil exports were in the form of crude oil. Following implementation of the new export tax rates, export prices for Indonesian refined palm oil were reportedly lower than the price for crude oil. Whether Indonesian exporters can sustain a higher volume of trade in refined palm oil will be determined by the expansion rate for refining capacity in the country. Total exports of palm oil from Indonesia are forecast to rise 14 percent in 2011/12 to 18.9 million tons.

Indonesia’s dominance in global palm oil trade makes its revised policy impossible to ignore, but it is controversial in other countries. India’s vegetable oil refiners fear a substantial loss of business from the change in Indonesia’s export tax structure. Even now India has excess refining capacity for vegetable oil, which is reported close to 20 million tons. From Indonesia alone, India is annually importing close to 5 million tons of palm oil, of which crude palm oil accounts for about 80 percent of the total. But India’s import duty on crude palm oil imports is already at zero, so it becomes more difficult politically to widen the tariff differential for refined oil. Any attempt by India to protect its refining industry by making an offsetting tariff increase for refined palm oil (or to decree a higher reference price on which the tariff is applied) would pass all of the higher cost onto its own consumers. In the EU—Indonesia’s second-largest market—palm oil refiners have voiced similar objections to the Indonesian export tax regime.

Malaysian oil processors, who are the main competitors in the export market for refined palm oil, also see Indonesia threatening their market share. Compared to Malaysian prices, export prices for refined palm oil from Indonesia are now discounted by up to $100 per metric ton. This may force Malaysian exporters of refined palm oil to accept considerably smaller processing margins to preserve market share. Only a marginal increase in Malaysian palm oil exports—to 15.9 million tons from 15.8 million in 2010/11—is expected for 2011/12.

[Mustang Sally Farm]

An Idea: Perennial Grains
28 December 2011



GENERAL - Annual grains feed the world, but they create problems. Perennials are thrifty. Their long roots hold on to soil, water, and fertilizer, which means less pollution, writes Robert Kunzig for the National Geographic.

Humans made an unwitting but fateful choice 10,000 years ago as we started cultivating wild plants: We chose annuals. All the grains that feed billions of people today—wheat, rice, corn, and so on—come from annual plants, which sprout from seeds, produce new seeds, and die every year. "The whole world is mostly perennials," says USDA geneticist Edward Buckler, who studies corn at Cornell University.
 
"So why did we domesticate annuals?" Not because annuals were better, he says, but because Neolithic farmers rapidly made them better—enlarging their seeds, for instance, by replanting the ones from thriving plants, year after year. Perennials didn't benefit from that kind of selective breeding, because they don't need to be replanted. Their natural advantage became a handicap. They became the road not taken.
 
Today an enthusiastic band of scientists have gone back to that fork in the road: They're trying to breed perennial wheat, rice, and other grains. Wes Jackson, co-founder and president of the Land Institute in Salina, Kansas, has promoted the idea for decades. It has never had much money behind it.

But plant breeders in Salina and elsewhere are now crossing modern grains with wild perennial relatives; they're also trying to domesticate the wild plants directly. Either way the goal is crops that would tap the main advantage of perennials—the deep, dense root systems that fuel the plants' rebirth each spring and that make them so resilient and resource efficient—without sacrificing too much of the grain yield that millennia of selection have bred into annuals.
 
We pay a steep price for our reliance on high yields and shallow roots, says soil scientist—and National Geographic emerging explorer—Jerry Glover of the Land Institute. Because annual root crops mostly tap into only the top foot or so of soil, that layer gets depleted, forcing farmers to rely on large amounts of fertilisers to maintain high yields. Often less than half the fertiliser in the Midwest gets taken up by crops; much of it washes into the Gulf of Mexico, where it fertilises algae blooms that cause a vast dead zone around the mouth of the Mississippi. Annuals also promote heavy use of pesticides or tillage because they leave the ground bare much of the year. That allows weeds to invade.
 
Above all, leaving the ground bare after harvest and plowing it in planting season erodes the soil. No-till farming and other conservation practices have reduced the rate of soil loss in the US by more than 40 per cent since the 1980s, but it's still around 1.7 billion tons a year. Worldwide, one estimate put the rate of soil erosion from plowed fields at ten to a hundred times the rate of soil production. "Unless this disease is checked, the human race will wilt like any other crop," Mr Jackson wrote 30 years ago. As growing populations force farmers in poor countries onto steeper, erodible slopes, the "disease" threatens to get worse.
 
Perennial grains would help with all these problems. They would keep the ground covered, reducing erosion and the need for pesticides, and their deep roots would stabilise the soil and make the grains more suitable for marginal lands.

"Perennials capture water and nutrients 10 or 12 feet down in the soil, 11 months of the year," Mr Glover says. The deep roots and ground cover would also hold on to fertiliser—reducing the cost to the farmer as well as to the environment.
 
The perennial wheat-wheatgrass hybrid now growing at the Land Institute can already be made into flour. Yields are too low to compete with annual wheat in Kansas—but maybe not in Nepal, which has steeper slopes and a harsher climate, and where a researcher is now testing perennial hybrids in small plots. Amber waves of perennial grain may be decades away, but the emergence of cheap DNA sequencing is allowing plant breeders to work much faster than they used to.

Mr Buckler thinks that for a tiny fraction of the billions spent annually on corn research, one could create field-testable perennial corn in as little as ten years. "I think we should take a shot at revolutionising agriculture," he says.

[Mustang Sally Farm]

By RICK CALLAHAN, The Associated Press, Updated: December 28, 2011 4:33 PM
Bugs may be resistant to genetically modified corn

One of the nation's most widely planted crops — a genetically engineered corn plant that makes its own insecticide — may be losing its effectiveness because a major pest appears to be developing resistance more quickly than scientists expected.

The U.S. food supply is not in any immediate danger because the problem remains isolated. But scientists fear potentially risky farming practices could be blunting the hybrid's sophisticated weaponry.

When it was introduced in 2003, so-called Bt corn seemed like the answer to farmers' dreams: It would allow growers to bring in bountiful harvests using fewer chemicals because the corn naturally produces a toxin that poisons western corn rootworms. The hybrid was such a swift success that it and similar varieties now account for 65 percent of all U.S. corn acres — grain that ends up in thousands of everyday foods such as cereal, sweeteners and cooking oil.

But over the last few summers, rootworms have feasted on the roots of Bt corn in parts of four Midwestern states, suggesting that some of the insects are becoming resistant to the crop's pest-fighting powers.

Scientists say the problem could be partly the result of farmers who've planted Bt corn year after year in the same fields.

Most farmers rotate corn with other crops in a practice long used to curb the spread of pests, but some have abandoned rotation because they need extra grain for livestock or because they have grain contracts with ethanol producers. Other farmers have eschewed the practice to cash in on high corn prices, which hit a record in June.

"Right now, quite frankly, it's very profitable to grow corn," said Michael Gray, a University of Illinois crop sciences professor who's tracking Bt corn damage in that state.

A scientist recently sounded an alarm throughout the biotech industry when he published findings concluding that rootworms in a handful of Bt cornfields in Iowa had evolved an ability to survive the corn's formidable defenses.

Similar crop damage has been seen in parts of Illinois, Minnesota and Nebraska, but researchers are still investigating whether rootworms capable of surviving the Bt toxin were the cause.

University of Minnesota entomologist Kenneth Ostlie said the severity of rootworm damage to Bt fields in Minnesota has eased since the problem surfaced in 2009. Yet reports of damage have become more widespread, and he fears resistance could be spreading undetected because the damage rootworms inflict often isn't apparent.

Without strong winds, wet soil or both, plants can be damaged at the roots but remain upright, concealing the problem. He said the damage he observed in Minnesota came to light only because storms in 2009 toppled corn plants with damaged roots.

"The analogy I often use with growers is that we're looking at an iceberg and all we see is the tip of the problem," Ostlie said. "And it's a little bit like looking at an iceberg through fog because the only time we know we have a problem is when we get the right weather conditions."

Seed maker Monsanto Co. created the Bt strain by splicing a gene from a common soil organism called Bacillus thuringiensis into the plant. The natural insecticide it makes is considered harmless to people and livestock.

Scientists always expected rootworms to develop some resistance to the toxin produced by that gene. But the worrisome signs of possible resistance have emerged sooner than many expected.

The Environmental Protection Agency recently chided Monsanto, declaring in a Nov. 22 report that it wasn't doing enough to monitor suspected resistance among rootworm populations. The report urged a tougher approach, including expanding monitoring efforts to a total of seven states, including Colorado, South Dakota and Wisconsin. The agency also wanted to ensure farmers in areas of concern begin using insecticides and other methods to combat possible resistance.

Monsanto insists there's no conclusive proof that rootworms have become immune to the crop, but the company said it regards the situation seriously and has been taking steps that are "directly in line" with federal recommendations.

Some scientists fear it could already be too late to prevent the rise of resistance, in large part because of the way some farmers have been planting the crop.

They point to two factors: farmers who have abandoned crop rotation and others have neglected to plant non-Bt corn within Bt fields or in surrounding fields as a way to create a "refuge" for non-resistant rootworms in the hope they will mate with resistant rootworms and dilute their genes.

Experts worry that the actions of a few farmers could jeopardize an innovation that has significantly reduced pesticide use and saved growers billions of dollars in lost yields and chemical-control costs.

"This is a public good that should be protected for future generations and not squandered too quickly," said Gregory Jaffe, biotechnology director at the Center for Science and Public Policy.

Iowa State University entomologist Aaron Gassmann published research in July concluding that resistance had arisen among rootworms he collected in four Iowa fields. Those fields had been planted for three to six straight years with Bt corn — a practice that ensured any resistant rootworms could lay their eggs in an area that would offer plenty of food for the next generation.

For now, the rootworm resistance in Iowa appears isolated, but Gassmann said that could change if farmers don't quickly take action. For one, the rootworm larvae grow into adult beetles that can fly, meaning resistant beetles could easily spread to new areas.

"I think this provides an important early warning," Gassmann said.

Besides rotating crops, farmers can also fight resistance by switching between Bt corn varieties, which produce different toxins, or planting newer varieties with multiple toxins. They can also treat damaged fields with insecticides to kill any resistant rootworms — or employ a combination of all those approaches.

The EPA requires growers to devote 20 percent of their fields to non-Bt corn. After the crop was released in 2003, nine out of 10 farmers met that standard. Now it's only seven or eight, Jaffe said.

Seed companies are supposed to cut off farmers with a record of violating the planting rules, which are specified in seed-purchasing contracts. To improve compliance, companies are now introducing blends that have ordinary seed premixed with Bt seed.

Brian Schaumburg, who farms 1,400 acres near the north-central Illinois town of Chenoa, plants as much Bt corn as he can every spring.

But Schaumburg said he shifts his planting strategies every year — varying which Bt corn hybrids he plants and using pesticides when needed — to reduce the chances rootworm resistance might emerge in his fields.

Schaumburg said he always plants the required refuge fields and believes very few farmers defy the rule. Those who do put the valuable crop at risk, he said.

"If we don't do it right, we could lose these good tools," Schaumberg said.

If rootworms do become resistant to Bt corn, it "could become the most economically damaging example of insect resistance to a genetically modified crop in the U.S.," said Bruce Tabashnik, an entomologist at the University of Arizona. "It's a pest of great economic significance — a billion-dollar pest."

[Mustang Sally Farm]

Thursday, December 29, 2011
End of Ethanol Tax Credits Affects Feed Market
ANALYSIS - The US ethanol tax credit, which is worth roughly $6 billion, is due to end at the turn of the year, writes Editor in Chief, Chris Harris.

Many in the US ethanol industry believe they have built such secure foundations that its removal on 31 December will not have serious repercussions.

Ethanol manufacturers are focusing on promoting higher blends of ethanol into petrol and installing blender pumps to dispense higher blends and larger production of flex-fuel vehicles.

Bob Dinneen of the trade group the Renewable Fuels Association said that he expects a continued growth in the industry.

However, with now around half the corn grown in the US going to first generation biofuels, the removal of the assistance to ethanol producers could have far reaching repercussions. Ethanol takes a larger share of the US corn crop than cattle, pigs and poultry put together.

This growth in the use of corn for ethanol rather than livestock feed fueld the fule vs feed debate and drew howls of anguish from food manufacturers, livestock producers and environmentalists.

The change at the end of the year that was signalled during the summer will see a tariff of 54 cents a gallon on ethanol imports expire along with the excise tax credit of 45 cents a gallon.

The Brazilian Cane Sugar Association (UNICA) believes the removal of the tariff will open up the US market and spur long-term growth for Brazilian ethanol.

However, at the moment while Brazil exports premium ethanol to California, it imports more than it exports and the bulk of the imports come from the US in the form of corn based ethanol.

Up to October this year, Brazil shipped 39 million gallons of ethanol to the U.S. market. In the same period, 156.3 million gallons of US ethanol went to Brazil.

The US is the world's foremost manufacturer of ethanol with an output of 13.8 billion gallons forecast for this year.

Brazil is number two with 6 billion gallons.

For some US manufacturers, the removal of the tax breaks, which came into force in 1979, are being viewed as a major blow.

The industry has written to Congress calling for an extension of the Cellulosic Biofuels Producer Tax Credit and the Special Depreciation Allowance for Cellulosic Biofuel Plant Property.

The Advanced Ethanol Council said the credits are vital to the development of the domestic advanced ethanol industry.

"To ensure stability in the marketplace and prevent unnecessary job losses, Congress should provide long-term extensions of these provisions (5+ years)," the AEC wrote.

The AEC has called for a comprehensive approach to the reform of energy tax, but it added that in the meantime it was necessary to extend the tax incentives.

Another effect that the removal of the tax credits for corn produced ethanol is likely to have is on the price of corn for animal feed.

When the subsidies are removed, will the price of corn for ethanol production be forced down as the ethanol manufacturers strive to reduce production costs?

Will the farmers, who have been receiving good money from the ethanol producers for their corn, accept a dip in prices?

In the long run, if the removal of the subsidies has the effect of reducing corn prices, this also will be good news to livestock farmers, who could expect to see feed corn prices also come down.

Another scenario is that the price of ethanol will rise to consumers to balance out the loss of the subsidies. If this is the case, the balance between fossil fuel prices and biofuel prices will be upset, making fossil fuels more attractive.

All in all the New Year offers an interesting time on the corn markets in the US, which in turn will be reflected in corn markets and prices around the world.


Chris Harris, Editor-in-Chief

[Mustang Sally Farm]

Monday, January 09, 2012
CME: Relationships that May Impact Corn Prices
US - Writing in a recent Markets column for FarmweekNow.com, friend and noted analyst Dale Durchholz of AgriVisor pointed out some very interesting price relationships that may be impact corn prices in coming months, write Steve Meyer and Len Steiner


The dominant force in the corn (and thus all grain and soybean) markets the past few weeks has been growing weather challenges in Argentina.

Hot, dry conditions in the primary corn growing country in the southern hemisphere have driven corn futures anywhere from 60 to 80 cents per bushel higher, depending on which contract you look at, since 15 December.

News reports and forecasts this week indicate that conditions may be improving but the rally has moved corn futures prices well away for that December trough — at least for the time being.

Mr Durchholz contends, though, that there are significant factors that will pressure corn prices as we go into the spring and summer and offers the ratios of corn price to wheat and soybean prices as prime evidence. The charts of those two ratios, using weekly data in order to include a longer historical period, appear at right and the sources of Dale’s argument are clear: Both ratios are very near alltime highs.

We find the situation worthy of attention because these two ratios measure corn relative to two major competitive situations.

The first is value-in-use as livestock feed. Expensive corn will encourage wheat feeding, pushing wheat prices higher and lowering this ratio. It will also ration corn supplies and push corn prices lower in the future.

The second competitive situation is the Corn:Soybean ratio’s implications for the value-in-use of land. It is clear that corn is going to compete VERY well on a price basis with soybeans and every estimate we have seen of projected returns above cash costs for US farmers suggest that this price ratio strength will translate into a peracre profitability advantage. The result will be more corn acres, more corn (assuming weather is good) and lower corn prices re. soybeans.

But we also read Dale’s column and said “Yes, but what about OIL?” The advent of corn-based ethanol has added a new value-in-use proposition to the corn market in recent years and has tied corn prices to the prices of oil and gasoline. The bottom chart shows that this measure of relative corn value is not quite as negative for corn prices as are the others.

The 12/31 price ratio of .065 is very close to the middle of the Corn:Crude Oil ratios observed since mid- 2006. It does not suggest price pressure in any direction for corn at this time and would, in our mind, be more supportive to corn prices than would either of the other two ratios. The ration does, though, allow plenty of room for corn prices to fall without creating an unusual relationship with crude oil. Not supportive of corn but not definitive.

We think two issues are vitally important. First, are there any compelling reasons to think that the relative values of the crops in question have changed more-or-less permanently? Second, which price in each ratio is more likely to move and thus change the relationship? It certainly may be, as Durchholz states, corn but the U.S. accounts for a smaller world share of both wheat and soybean output than it does corn. Growers in other countries will hold much more influence on those prices.

[Mustang Sally Farm]

Tuesday, January 10, 2012
USDA: Focus on South American Weather
US - Corn and soybean prices declined sharply in mid-November and remained at the lower level through mid-December. From mid-December through early January, the cash price of corn in central Illinois increased by $0.78 while the cash price of soybeans increased by $1.21 per bushel.


One of the factors that has contributed to higher prices is adverse weather in parts of Argentina and southern Brazil during a critical phase of crop development. Periods of extremely high temperatures and well below average levels of precipitation in December have threatened both the corn and soybean crops in those areas.

The adverse weather followed very favorable weather conditions in November. The weather pattern in those areas has been similar to that of 2008-09 when corn and soybean production was substantially reduced in Argentina. Some beneficial rainfall in the dry areas is expected this week, but the forecast calls for a return of hot, dry weather next week. It is difficult to assess potential corn and soybean production in Argentina and Brazil, but the pattern of production estimates in 2008-09 might provide some guidance.

In early December 2008, the USDA judged 2009 corn production potential in Argentina at 710 million bushels. The final production estimate was nearly 17 per cent smaller at about 590 million bushels. The 2009 Brazilian corn crop was forecast at 2.1 billion bushels in December 2008, but actual production was nearly 5 per cent less at two billion bushels.

In early December 2011, the USDA forecast the 2012 Argentine corn crop at about 1.14 billion bushel. If production is eventually reduced by 17 per cent, as it was in 2009, the crop would come in at about 950 million bushels. Similarly, the USDA has projected the 2012 Brazilian corn crop at about 2.4 billion bushels. If production is reduced by five per cent, the crop would total about 2.3 billion bushels.

A 2012 South American corn crop that is 290 million bushels smaller than the current forecast would likely lead to larger US corn exports in both the 2011-12 and 2012-13 marketing years. In December 2008, the USDA projected 2008-09 marketing year US corn exports at 1.8 billion bushels. Exports were 49 million bushels larger than the forecast, equal to about 22 per cent of the reduction in the size of the South American crop from the December 2008 forecast.

This year, USDA projects US corn exports at 1.6 billion bushels. A 290 million bushel reduction in the size of the South American crop could boost US exports by as much as 65 million bushels. The increase, however, might be smaller due to the abundance of feed grains and wheat in the rest of the world.

For soybeans, The USDA projected the 2009 Argentine crop at 1.855 billion bushels in December 2008. Production totaled only 1.175 billion bushels, nearly 37 less than the December projection. The size of the Brazilian crop was forecast at 2.168 billion bushels in December 2008, but came in about two per cent smaller at 2.124 billion bushels.

In December 2011, the USDA projected the 2012 Argentine soybean crop at 1.95 billion bushels and the Brazilian crop at 2.755 billion bushels. Reductions similar to those of 2009 would result in crops of 1.23 billion bushels and 2.7 billion bushels, respectively. Production would be 775 million bushels below the current projection.

In 2008-09, US soybean exports totaled 1.279 billion bushels, 229 million larger than the USDA’s December 2008 projection. The increase equaled 31 per cent of the reduction in the size of the South American crop. For the current marketing year, the USDA projects US soybean exports at 1.325 billion bushels.

Exports would be 240 million bushels larger if they increased by 31per cent of the potential shortfall in South American production. Exports will not be that large since the expected shortfall in South American production is less than 775 million bushels and particularly since US supplies are not large enough to support exports at that level.

The USDA will update the projections of South American corn and soybean production on 12 January. The final estimates of the size of the 2011 US corn and soybean crops and the estimate of 1 December, 2011 stocks of those two crops will also be released on 12 January.

The estimate of corn stocks will be especially important as it will reflect any changes in the production estimate and the rate of feed and residual use during the first quarter of the marketing year. The trade is expecting a smaller production estimate and a relatively small inventory number.

The level of corn and soybean prices over the next seven weeks will be extremely important. The average price of December 2012 corn futures and November 2012 soybean futures during February will establish the price guarantee for crop revenue insurance products. It now looks as though those prices will be well supported.

[Mustang Sally Farm]

Tuesday, January 10, 2012
CME: 2011 USDA Corn Yield Estimates Down Again
US - USDA will kick off the new year of “highly anticipated” crop production data Thursday with its monthly Crop Production and World Agricultural Supply and Demand Estimates (WASDE), quarterly Grain Stocks and annual Winter Wheat Seedings reports, write Steve Meyer and Len Steiner.


The results of Reuters’ pre-report survey of market analysts regarding their estimates of the USDA numbers appear below. These survey results are offered to provide a sense of the information that is “in the market” prior to the report. The average’s shown here provide some idea of what “the market” is expecting to see. Actual report numbers that differ substantially from these averages usually result in futures contract price changes.

As expected, analysts’ expectations for USDA estimates of 2011 corn and soybean yield and production are basically “fine tuning” of previous estimates. They expect, on average, the corn yield to be lowered again,this time to 146.2, down 0.5 bushels from December and 4.4 per cent lower than the 2010 yield.

The yield decline is expected to shave 45 mil. bu. off USDA’s 2011 corn crop estimate. At 12.265 bil. bu., the 2011 crop would be 1.5 per cent lower than one year earlier but would still rank as the fourth largest US corn crop on record.

USDA’s 2011 soybean yield estiamtes is expected to be raised slightly to 41.4 bushels per acre, up 0.1 bushels from last year. That yield would be 4.9 per cent smaller than last year. The 2011 bean crop is, quite logically, also expected to be slightly from last month’s estimate to 3.048 billion bushels. At that level, the 2011 crop would rank as the sixth largest in history.

Analysts expect 1 December, 2011 US corn and wheat stocks to be sharply lower than one year ago. That number certainly makes sense for wheat due to significantly lower hard red winter wheat output last year and higher feeding levels for soft red wheat last summer. Total wheat stocks are expected to be 1.695 billion bushels on 1 December, 2011, 12.3 per cent lower than last year.

Corn stocks at an expected 9.391 billion bushels would be 6.7 per cent below last year levels. The 2011-12 crop year started off with 580 million fewer bushels in inventory, added 137 million fewer bushels of production (according to USDA’s December estimates) than was added by the 2010 crop and there are now 666 million bushels less in inventory as of 1 December.

Do the math and those figures say that total corn usage in the Sep 1—Dec 1 quarter was 4.047 billion bushels compared to 4.121 billion bushels one year ago. Slower exports were more than offset by higher ethanol usage (due to an apparent race to capture blenders tax credits before they expired on December 31).

We do not believe that feed usage was much lower in the quarter relative to last year due to higher numbers of hogs and cattle on feed offsetting lower chicken numbers.

Winter wheat seedings show total acres slightly higher (by 0.7 per cent) than one year ago but some shifts among the types of wheat.

Hard red seedings, which account for over 70 per cent of the total) are expected to be nearly 1 million acres higher than last year while soft red seeding are expected to fall by nearly 800,000 acres. Moisture conditions in the wheat belt have improved considerably but continued improvement in conditions in Oklahoma, Texas and Kansa will be key for the hard red wheat crop next summer.

With all that said, the numbers that will get the most attention will be USDA’s estimates of South Americanc orn and soybean crops. Informa Economics on Friday cut its estimate of Argentina’s corn crop by three million MT (11 per cent) to 24 mil. MT.

It also lowered its estimate for Brazilian corn to 61 mil. MT, down 2 mil. MT. or 3.2 per cent from prior estimates. Informa lowered its estimates of both countries’ soybean harvests by two mil. MT — to 51 mil. MT for Argentina and 72 mil. MT for Brazil.

[Mustang Sally Farm]

Friday, January 13, 2012

CME: Corn Plunges on Inventory Report

US - March, May and July corn futures plunged limit-down (-40¢) yesterday after USDA announced higher-than-expected inventories in its quarterly “Grain Stocks” report, writes Alan Levitt.
 

World carryout corn stocks for 2011/12 are projected to reach 128.1 million tons, up one million tons from the December estimate. MAR corn settled at $6.11/bushel, erasing the gains of the previous three weeks.

In Dairy Market News’ weekly survey, dry whey prices at the midpoint of the range topped 70¢ this week for the first time since July 2007.

In the Midwest, dry whey is mostly 69.5¢- 72¢, while in the West it’s mostly 69¢-72.25¢, DMN says.

“First quarter contracts reflect tighter supplies for the new year,” the report adds. “The whey stream supply is increasingly diverted to higher protein concentrates and therefore less is available for dry whey production.”

However, the European whey market has been steady for two months, even as US prices have tacked on 7-9¢ over that time. DMN pegs European dry whey at 58-64¢, leaving the premium of US prices over European prices at the widest ever.

In Europe, “whey volumes are starting to build as buyers have been absent from the marketplace during the year-end holidays and, for some, prices of European offerings are higher than they are willing to pay,” DMN explains. Whey futures were mixed yesterday, with Q1 contracts averaging 70.0¢ and Q2 averaging 64.9¢.

[Mustang Sally Farm]

Argentinian Barley Harvest Greatest in Ten Years
16 January 2012

ARGENTINA - The Grain Exchange of Buenos Aires last week reported that the harvest of malting barley, with a backlog of 3.65 million tonnes, was higher than the previous cycle of 2.50 million, and most importantly of the last 10 years, reports lanacion.com.

"The cultivated area recorded an increase of 49 per cent over the 2010/2011 season, going from 650,000 to 970,000 hectares. One of the main reasons for this increase was the producer's intention to seek a substitute for wheat crops. In addition to the agronomic benefits that this crop offers, the possibility of early harvest makes way for planting soybeans afterwards," said the Grain Exchange.
 
The harvest ended with an average yield of 41 quintals per hectare.

[Mustang Sally Farm]

KAZAKHSTAN - The USDA estimates Kazakhstan 2011/12 wheat production at 22.5 million tons, up 1.5 million or 7 per cent from last month, and up 12.8 million or 132 per cent from last year.

The harvest surpassed the previous record of 22.2 million tons, set in 1979 when sown area was nearly 25 per cent higher. Area for 2011/12 is estimated at 13.8 million hectares against 14.5 million last year. Yield is estimated at a record 1.63 tons per hectare (t/ha) compared to 1.52 t/ha last month, 0.67 t/ha last year, and the 5-year average of 1.02 t/ha.
 
The month-to-month revision is based on preliminary data from the State Statistical Agency. The main wheat-production region benefited from outstanding weather throughout the growing season. Wheat typically comprises about 80 to 85 per cent of Kazakhstan’s total grain production.

[Mustang Sally Farm]

CME: Corn Futures Closed Lower Thursday
13 January 2012

US - March Corn finished down 40 at 611 1/2, 48 off the high and equal to the low. May Corn closed down 40 at 618 1/4. This was equal to the low and 48 off the high.

March corn traded for just a few minutes this morning before locking down the 40 cent limit. The market stayed limit down for the first two hours of trade and then saw a 2 1/2 cent trading range near the mid-session. The USDA data was very negative for grain stocks and production data and this helped spark aggressive selling from speculators and producers early in the day.
 
Traders had been looking for bullish news so buyers have been active over the past week or more and the market lacked new buying interest on the early break. Traders noted that synthetic options traded down 3 1/2 cents more than the limit shortly after the opening. The USDA pegged ending stocks for the 2011/12 season at 846 million bushels which was down just two million from last month and well above trade expectations for a 100 million bushel decline.
 
Final production was pegged at 12.358 billion bushels, up 48 million bushels from their previous forecast while traders were expecting a drop of near 45 million bushels. Yield was 147.2 vs. 146.7 previous. Exports were revised higher by 50 million bushels. World ending stocks were pegged at 128.14 million tonnes from 127.19 million last month and trade expectations near 123.5 million tonnes. Argentina production was revised down by 3 million tonnes to 26 million and Brazil was left unchanged. December 1st corn stocks were pegged at 9.642 billion bushels which was up 250 million from trade expectations.
 
Weekly export sales for corn, came in at 321,500 metric tonnes for the current marketing year and cancellations of 23,000 for the next marketing year for a total of 298,500 tonnes which was well below trade expectations. Cumulative corn sales stand at 59.6 per cent of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 53.9 per cent. Sales of 493,000 metric tonnes are needed each week to reach the USDA forecast. March Rice finished down 0.23 at 14.57, 0.14 off the high and 0.12 up from the low.
 
Wheat Futures Closed Lower
 
March Wheat finished down 36 at 605, 43 3/4 off the high and 13 up from the low. July Wheat closed down 30 at 648. This was 15 3/4 up from the low and 37 off the high. March wheat closed sharply lower on the session as both wheat and corn data from the USDA was bearish enough to spark aggressive selling. The wheat data was bearish as US usage came in below trade expectations and wheat plantings for the 2012 crop came in well above trade expectations.
 
The USDA pegged total winter wheat planted acreage for 2012 at 41.947 million acres as compared with trade expectations for near 40.933 million. Hard red winter wheat acreage was up 662 million above trade expectations to over 30 million and soft red was up nearly 600 million above expectations at 8.37 million.
 
Ending stocks for the 2011/12 season were pegged at 870 million bushels as compared with trade expectations near 842 million. While exports were revised higher (as expected) feed usage was revised lower by 15 million bushels to 145 million which was bearish as traders expected a boost in wheat feeding. Wheat stocks as of December 1st were pegged at 1.656 billion bushels as compared with trade expectations at 1.695 billion. For the world report, 2011/12 ending stocks were pegged at 210.02 million tonnes, up more than 2 million from trade expectations.
 
Weekly export sales for wheat came in at 365,200 metric tonnes for the current marketing year and 73,000 for the next marketing year for a total of 438,200. Cumulative wheat sales stand at 77.2 per cent of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 75.2 per cent. Sales of 279,000 metric tonnes are needed each week to reach the USDA forecast. On top of the weekly sales, Algeria bought 300,000 tonnes of optional origin milling wheat.
 
Traders believe the origin is likely France or Argentina. The EU granted export licenses this week for 168,000 tonnes which pushed cumulative exports since the start of the 2011/12 season to 7.5 million tonnes as compared with 11.9 million last year at this time. March wheat is now down as much as 78 3/4 cents or 11.7 per cent from the 2012 peak. March Oats closed down 14 1/4 at 284 1/4. This was 5 3/4 up from the low and 16 1/2 off the high.
 
Soybean Futures Closed Lower
 
March Soybeans finished down 20 1/2 at 1182 1/2, 31 off the high and 32 1/2 up from the low. May Soybeans closed down 20 at 1192 1/2. This was 32 1/2 up from the low and 31 off the high. March Soymeal closed down 5.7 at 307.1. This was 10.7 up from the low and 8.2 off the high. March Soybean Oil finished down 0.43 at 51.46, 0.82 off the high and 1.18 up from the low. March soybeans were down 53 cents early in the session but managed to rally 32 1/2 cents off of the early lows into the mid-session.
 
The USDA data was mostly bearish across the board but especially for the corn market and a limit-down move in corn to start the day helped to drive soybeans sharply lower. The USDA pegged US soybean production at 3.056 billion bushels from 3.046 billion last month which was about as expected. Ending stocks, however, were pegged at 275 million bushels as compared with trade expectations looking for near 233 million. Exports were revised lower by 25 million and crush down by 10 million.
 
Without a serious drop in South America production, the USDA was in a position to drop usage and the increase in production and lower usage fell directly to the bottom line. World ending stocks for the 2011/12 season came in at 63.43 million tonnes as compared with 64.54 million last month. December 1st soybean stocks came in at 2.366 billion bushels, up 42 million from trade expectations. Weekly export sales for soybeans came in at 433,900 metric tonnes for the current marketing year and 300 for the next marketing year for a total of 434,200. Sales of 296,000 metric tonnes are needed each week to reach the USDA forecast.
 
Net meal sales came in at 47,600 tonnes which was below trade expectations and compares with sales of 99,000 tonnes needed each week to reach the USDA forecast. Net oil sales came in at just 1,100 metric tonnes which was also lower than expected. As of January 5th, cumulative soybean oil sales stand at 31.7 per cent of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 42.0 per cent. Sales of 10,000 metric tonnes are needed each week to reach the USDA forecast.
 
On top of the weekly sales, private exporters reported to the USDA export sales of 414,000 tonnes of US soybeans to unknown destination. The USDA news was negative but traders believe that the market would not be down as much as it was except for the outlook for improving weather in South America in another 8-9 days after heavy rains in the past few days. In addition, the limit-down move in corn has added to the negative tone. Traders will be closely monitoring weather forecasts in South America for direction Friday and early next week.

[Mustang Sally Farm]

Drought in Southern Brazil Reduces 2011/12 Soybean Production Forecast
13 January 2012

BRAZIL - Brazil’s 2011/12 soybean production is forecast at 74 million tons, down 1.0 million from last month and down 1.5 million or 2 per cent from last year.

Yield is forecast at 2.96 tons per hectare, down 1 per cent from last month due to below-average rainfall in the south during November and December. Area is forecast at a record 25 million hectares, unchanged from last month and up 0.8 million or 3 per cent from last year. The planting pace was ahead of the 5-year average throughout the planting season, with most of the crop planted by the end of December.
 
Above-average rainfall during October gave nearly ideal planting conditions for most of Brazil. However, below-average rainfall in the south during December reduced potential yields, especially in regions that were planted early where crop stage was in the critical flowering and pod-filling stages during December’s drought.
 
Harvesting started this month in Parana, the second-largest soybean producing state, which reported below-average yields in the early-planted regions located in the western and southwestern portions of the state. DERAL, the state crop estimating agency for Parana, also reduced their soybean production forecast this month by 1.4 million tons (from 14.1 to 12.7 MT) due to December’s drought and low reported harvested yields in western Parana. In contrast, seasonal rainfall was beneficial in central and northeastern parts of Brazil. Mato Grosso, the largest soybean producing state in the central west, is expecting a record soybean harvest of 22.2 million tons and above last year’s record crop of 20.4 million tons.

[Mustang Sally Farm]

Wednesday, January 18, 2012
Corn Stocks Report Throws Another Curve Ball
US - In this week's "Market Preview" featured in National Hog Farmer magazine, Steve Meyer discusses the latest WASDE and "Grain Stocks" report released by the US Department of Agriculture (USDA).


Sometimes, it is best to not ask "why" a situation looks a bit screwy, but rather to simply take advantage of it and move on. Such may be the case with the USDA’s World Agricultural Supply & Demand Estimates (WASDE) and Grain Stocks reports released last week.

Figure 1 shows the latest domestic production, supply and demand data for corn from USDA. The numbers were somewhat bearish in that they indeed suggest higher output and, thus, larger supplies for the current crop year. The new yield estimate of 147.2/acre is 0.5 bushels larger than the December estimate and a whole bushel higher than the average of analysts’ pre-report expectations. However, in the big picture, the impact on the estimated crop is pretty marginal as the additional 48 million bushels is completely removed by a 50-million bushel increase in projected exports. The net impact is a reduction in year-end projected stocks of only 2 million bushels, leaving the projected year-end stocks-to-use ratio at 6.7 per cent. None of those are enough to change markets much, even though USDA did shave 20 cents/bushel off of both ends of its forecast range for the average US farm price.


The surprise, and thus the primary source of Thursday and Friday’s price declines, was USDA’s estimate that 9.641 billion bushels of corn remained in storage in the United States on 1 December. As Figure 2 shows, that was 250 million bushels (2.7 per cent) higher than the average of analysts’ pre-report estimates and nearly beyond the top of the analysts’ range (9.7 billion bushels). That extra corn is available to the market, thus easing availability concerns and causing prices to fall.


The problem is that the USDA stocks numbers don’t make a lot of sense. And that’s not a new problem since the Grain Stocks reports have been throwing curve balls for the past two years. Those 1 December stocks imply that feed/residual usage for corn was over 10 per cent smaller for the September-November quarter than it was one year ago in spite of the fact that hog numbers were 1.3 per cent higher than last year on 1 December and the number of cattle on feed on 1 December was 4 per cent higher than last year. Yes, chicken numbers were down, but how many chickens can you feed with the corn that normally goes to a steer? The answer – a lot! It is also true that ethanol production and, thus, distiller’s dried grains with solubles (DDGS) production were higher and that wheat was favorably priced in some areas relative to corn. But 10 per cent lower feed usage still strikes me as very low relative to animal numbers.

In addition, USDA did not lower its estimate of feed/residual use for the year. It still stands at 4.6 billion bushels, 4 per cent lower than last year. If the first quarter is down 10 per cent, wouldn’t that reduce usage for the year? If not, just what is going to eat enough over the next three quarters for the number to catch up, even to down 4 per cent?

Any shortfall of corn feeding cannot be made up with DDGS this crop year since USDA is predicting less corn (5.0 vs. 5.2 billion bushels) will be used for ethanol production this year. One caveat is that domestic DDGS availability could rise if exports are reduced and lower corn prices and a stronger US dollar will make that happen to some degree. But I doubt it will be anywhere near enough to fill the whole implied by a 10 per cent reduction in the first quarter of the crop.

Maybe the best explanation was winter wheat seedings of 41.947 million acres, which exceeded the average pre-report estimate by over 1 million acres. That is a big, relatively unexpected increase especially given the weather conditions that the southern hard red winter wheat belt has suffered the past year. That is where the increase occurred, with Texas at +600,000 acres, Oklahoma at +400,000 and Kansas at +700,000 compared to last year. These increases support our recent admonishment that hog producers need to keep an eye on wheat prices and what they might imply for economical hog diets – if not for producers in the Corn Belt, then for producers nearer the major wheat-producing areas.

The good news from all of this is, of course, lower projected costs for the coming year. Figure 3 shows the costs and hog prices projected by closing lean hogs, corn and soybean meal futures prices last Friday. That $12.62/head profit figure is sharply higher than just one week earlier and is due, primarily, to a decline in projected costs. My average for 2012 is now "just" $82.14/cwt., carcass, over $4 lower than the average for 2011.


Will you be able to do better? Perhaps, if everything goes well with winter wheat development and corn planting season. Old crop corn, though, is back near the bottom of both its historic trading range and the $6 to $7 range that I have expected.

 



As published in National Hog Farmer's Weekly Preview.

[Mustang Sally Farm]

Tuesday, January 24, 2012
Corn Price Swings to Continue?
US - Since early October, corn prices have bounced in a wide trading range. March 2012 futures have traded between about $5.75 and $6.75 while December 2012 futures have been between about $5.35 and $6.20, writes Darrel Good, agricultural economist at University of Illinois.


The wide price fluctuations have reflected numerous changes in indications of underlying supply and demand for corn. Those changing factors included USDA production and stocks reports, South American weather, the rate of exports and export sales, the rate of ethanol production, and expectations about the potential size of the 2012 U.S. crop. Prices have also likely been influenced by the volatility in the financial, currency, and metals markets. Currently, March 2012 futures are near the middle of the four-month trading range, while December 2012 futures are in the low end of the recent range.

Prices for the 2011 crop are currently being supported by a fairly rapid rate of consumption and on-going uncertainty about the size of the upcoming South American harvest. Basis levels have been generally strong since harvest and are currently at record levels for this time of year in some markets. While 1 December 2011 stocks of US corn were larger than expected, they were at a 5-year low. Year-ending stocks are projected to be a relatively small 6.7 percent of consumption. Ethanol production in the first two weeks of January was nearly 5 percent larger than during the same two weeks last year. The low price of ethanol relative to gasoline suggests that blending economics will remain favorable even without the blenders’ tax credit. Ethanol export prospects also remain favorable due to reduced competition from Brazilian ethanol. With 7 months remaining in the marketing year, there is potential for price relationships to change, but it appears that corn use for production of ethanol and co-products is well on the way to reaching the USDA projection of 5 billion bushels for the year.

Earlier in the month, the USDA increased the projection of marketing year US corn exports by 50 million bushels, to a total of 1.65 billion bushels. The increase was partially in response to reduced production and export forecasts for Argentina. Recent weather in Argentina has been less stressful than in December and early January, but total precipitation since November has been well below average in most areas and less than in 2008-09 in some areas. Further reductions in the forecast size of that crop would not be surprising. The pace of exports and export sales of US corn also supported the larger projection of marketing year exports. As of 12 January, 62 percent of the projected marketing year exports had been sold, slightly ahead of the pace of a year ago. China has been a steady buyer of US corn since September, with commitments totaling 136 million bushels as of 12 January. New sales to China averaged 6 million bushels per week for the past 19 weeks. There were only two weeks when no new sales to China were recorded. Even with implied feed and residual use of corn at a very low level, year-ending stocks of U.S. corn could be slightly smaller than the current projection of 846 million bushels.

March 2013 futures are about $.50 lower than March 2012 futures and the spread widened about $.20 over the last week. The market is anticipating a larger US corn crop in 2012 and some build-up of inventories by the end of the 2012-13 marketing year. The larger crop expectation stems from expectations for an increase in acreage, motivated by high prices, and higher yields after two consecutive years of below trend yields. Current expectations for planted acreage of corn appear to center on about 94 million, two million more than planted in 2011. With favorable planting season weather, such an increase could be easily accommodated without a reduction in total acreage of other spring planted crops. Total cropland acreage could increase substantially in 2012 as a result of maturing CRP contracts in September 2011 and a sharp reduction in prevented plantings from those of 2011.

Planted acreage of 94 million would point to acreage harvested for grain near 87 million, 3 million more than harvested in 2011. An average yield near 160 bushels, then, would result in a crop of 13.92 billion bushels. Corn consumption would have to increase by 1.28 billion bushels (10 percent) next year to prevent an increase in the size of year-ending stocks. Unless expectations for a larger crop are altered by spring weather or by acreage estimates, prices for the 2012 crop will remain below the prices for the 2011 crop. Prices for the 2011 crop are expected to remain within the range established over the past four months, at least for a few more weeks.