Summary
· Record yields forecast for U.S. corn, soybeans and wheat
· Market will now monitor actual corn and soybean yields, as well as export demand
· USDA continues to project virtually unchanged GCAUs for next year, but forecasts corn feed/residual use to decline
· Ethanol margins were up $0.03 this week to $0.16/gallon, which is down from $0.24 last year
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What Did We Learn From The USDA Supply/Demand Report?
Summary: Last week’s USDA Supply/Demand report estimated record national average yields for corn, soybeans and wheat. Ending stocks for corn and wheat are forecast to decline modestly from last year, but soybean carryout is projected to more than double. As expected, a significant decline in wheat and coarse grain production was estimated for the Former Soviet Union, with U.S. wheat and corn exports boosted as a result. Finally, record soybean imports by China are anticipated for 2010/11. Market activity over the near-term will be tied directly to ideas about final yields for U.S. and world crops, as well as export demand. Price volatility is likely to remain quite high, resulting in great opportunity for your operation. By continuing to remain in regular contact with your Advance Trading advisor, you will be prepared for lower or higher markets.
Corn: Will Record Yields be Achieved, or Exceeded?
Last week, we highlighted some key points to look for the USDA’ s World Agricultural Supply and Demand Estimates (WASDE) report. Let’s review results from the report and highlight some potential market implications.
The first official estimate of the 2010 corn crop generated a record yield of 165.0 bushels per acre (bpa) as well as record production of 13.365 billion bushels (Bbu). Crop potential in the northern Corn Belt appears to be the greatest, with record yields forecast for Minnesota, Wisconsin, Michigan and North Dakota. In addition, the yield for Nebraska would also be a record while the estimate for Illinois would be record-tying. Will these yields be achieved, or exceeded? That is the crucial question since the USDA is also forecasting record usage of 13.490Bbu, with exports increased another 100 million bushels (mbu) following a decrease in coarse grain production and exports from the Former Soviet Union. At 1.312Bbu the estimated 2010/11 U.S. corn carryout is neither extremely tight, nor burdensome but could end up being either if final crop size shrinks or expands markedly
Soybeans: Exceptional Demand from China Underscores Need for large U.S. and South American Crops
The first official estimate of the 2010 soybean crop generated a record-tying yield of 44.0bpa and record production of 3.433Bbu. Similar to corn, yields in the northern state are forecast to be record high. Those estimates do have more room for variability than corn as August rainfall typically can add or subtract a significant number of bushels from initial estimate. Usage for U.S. beans is forecast to decline about 3% from last year due to increased competition from soybean and soybean product supplies from Brazil and Argentina. As a result, carryout for 2010/11 is pegged at 360mbu, or more than double the 09/10 estimate of 160. However, record import demand is forecast for China at more than 1.9Bbu (as a side note, that’s about equal to the entire production of the U.S. in the late 1980s). This makes it very important that good harvests be seen not only in the U.S. this fall, but also in South America next spring.
Wheat: U.S. Carryout Forecast to be Ample, Despite Increase in Exports
The latest estimate of the 2010 all wheat crop produced a record yield of 46.9bpa, with production if 2.265Bbu. Yields of Hard Red Spring are exceptional this year, helping to boost the production estimate. As expected, crop size in Russia was reduced sharply following their widespread drought, with output now pegged at 1.653Bbu vs. 1.947 last month. Exports from the entire Former Soviet Union were lowered by 580mbu, with U.S. shipments increased by 200mbu to 1.200Bbu. Despite the larger export forecast, ending stocks of all wheat are still projected to be ample at 953mbu, well above the 306mbu total available at the end of the 2007/08-crop year.
LIVESTOCK/POULTRY
Summary: In last week’s Supply and Demand report the USDA left their corn feed and residual estimates for both the 2009/10 and 2010/11 crop years unchanged from last month and made only small changes to their GCAU estimates for both crop years. The USDA continues to project virtually unchanged total GCAUs for next crop year, but forecasts corn feed and residual use to fall 175 mbu (3%) next crop year, from 5,525 mbu to 5,350 mbu
· Kansas cash cattle traded last week at $93.60/cwt, up $0.65 from the previous week. At this price, a feedyard that was not hedging made an estimated profit of just $2.60 to $4.10 per head depending on how the feed was purchased. Cattle being placed into feedyards at this time project losses. For 750-pound feeder steers being placed on feed this week. If steers cost $115.00/cwt and expected corn costs over the next several months are $4.17/bushel, we pencil a breakeven price of $102.10/cwt. With cash cattle in early January projected to be $96.81/cwt, a feedyard could expect a loss of $66.11 per head. Choice boxed beef values ended the week at $154.56/cwt, up $3.77 from a week earlier. Select values were $147.31/cwt, up $3.33 from a week earlier. The Choice-Select Spread was $7.25, $0.44 stronger than a week earlier.
· The weekly average Iowa/So. Minnesota price fell $2.14 from the week before to $58.70/cwt. This was above production costs and our calculations indicate a typical Iowa hog producer with un-hedged hogs turned a profit of $28.93 to $29.38 per head, depending on when the feed was purchased. Futures project strong margins to continue through summer as seasonally tight hog supplies support cash prices. Margins could narrow this fall and winter as hog supplies increase seasonally, but hog prices are projected to remain profitable. With estimated corn costs at $3.77/bushel and soybean meal at $305.70/ton, a pig farrowed today is expected to cost about $48.59/cwt to raise to a live market weight in February. With cash hogs projected to be $55.20/cwt, a pork producer could expect a profit of $16.53 per animal.
· Our estimates indicate that during July, it cost a typical Upper Midwest dairy about $13.27 to produce 100 pounds of milk. This was below the July Class III milk price of $13.74/cwt, meaning producers profited $0.47 for every 100 pounds of milk produced. Production costs so far in August are near $13.48/cwt. With current August milk futures at $15.05/cwt, a profit of $1.57 per 100 pounds of milk produced is anticipated. Current futures prices indicate production cost in February will be near $14.02/cwt. With February milk futures at $14.10/cwt, a profit of just $0.08/cwt is expected.
· Broiler egg set remained above year ago levels during the latest week, but still remains below historical levels for this time of year. Broiler egg set during the latest week (week ending August 7th) was up 3.5% from last year, but was 2.4% less than the average set for this time for 2006 through 2008. Over the last four weeks, egg set has averaged 3.1% above a year ago, but was 2.6% below the previous three year average. Chick placements during the latest week were up 1.6% from a year ago, but were off 1.9% from the previous three year average.
ENERGY/ETHANOL
· Ethanol margins were up $0.03 this week to $0.16/ gallon, which is down from $0.24 last year
· The latest EIA Petroleum Stocks report released on Wednesday showed that total combined inventories of crude oil and refined products hit a record high last week of 1.130 billion barrels, passing the previous high of 1.127 billion barrels from September 1990
· The same report indicated that Fuel ethanol production slowed 6 thousand barrels last week to 860 thousand barrels, while fuel ethanol stocks fell 138 thousand barrels to 19,205 thousand
Brian Basting
