Naturally, the revised estimates are all over the map. If we get yields of 155 bpa – still considerably higher than the previous two seasons and the third highest on record – the estimate for the crop would fall by about 1 billion bushels. That would slash the forecast for ending stocks from the current estimate of 1.881 billion bushels, or 13.65% of consumption, to 880 million bushels, or 6.4% of consumption.
If the scenario materializes in Murphy’s Law fashion, it would prove to be a great disappointment for bears. The massive increase in acreage for the 2012-13 was expected to be the belated response to the explosive growth in ethanol consumption. Instead, the 6.4% of usage carryover would be the lowest US ending stock figure since the first leg of the bull market began in 2007! (It’s not the lowest on record – that was in the mid-1990s bull market when the carryover sank to 5% of usage at the end the 1995-96 season).
The impact to the global market is severe in terms of what had been expected of the US crop. Inventories would have been restored to more comfortable levels of 16.8% of usage according to the USDA’s June crop report. Instead, that figure falls back to 14.2%, which would be the lowest since the 1973-74 season.
What are the sobering factors? In the June crop report the USDA raised its estimate for US 2011-12 ethanol usage by 50 million bushels, to 5.05 billion bushels. That was a bit of a surprise. However, in keeping with our belief that ethanol demand growth has peaked, its early forecast for 2012-13 is back to 5 billion bushels.
Furthermore, the USDA is anticipating a huge jump in exports for the new marketing year that begins in September. The early forecast calls for a 15% increase in foreign sales. If activity over the past few months is any indication, that is very optimistic. Aside from a 3.4-million-tonne single-week old- and new-crop spurt in early-May, sales have been sluggish. At the current pace, we’ll be lucky to meet the USDA target for 2011-12, which is already at a 10-year low. The four-week average for commitments has been 176,000 tonnes, but weekly commitments would have to be over 300,000 tonnes to make the estimate.
There’s much emotion that swirls around during weather scares. It’s hard to know much damage was done. We’ve been bearish on this market, primarily because the extraordinary US crop was going to be introduced to the market just as demand had flattened out. We’re stopped out of our May 11 short sale recommendation, and we’ll stand aside for now.