The August USDA crop report contained some of the largest and most dramatic revisions on record. All eyes were on the 2012-13 US corn crop, which has taken a drastic beating from this summer’s early and unusual heat.
The brutal weather began its damage in early June. The estimate for the bushel-per-acre (bpa) yield was already cut in the July crop report to 146 bpa, down from the June 166-bpa estimate, which would have produced a record-by-far crop of 14.79 billion bushels. The average of analysts’ guesstimates for the August report called for a further steep drop, to 127.33 bpa, with the actual figure coming in at 123.4 bpa. The difference between the estimate and guesstimate was close to 350 million bushels, large enough to be a game changer.
The overall results of the report, however, were much closer to what analysts had anticipated. The USDA made significant provisions for demand rationing. The estimate for 2012-13 feed usage was slashed from the July estimate by a whopping 725 million bushels, to 4.075 billion bushels. The estimate for ethanol usage was cut by 400 million bushels, to 4.5 billion bushels. The forecast for exports was lowered by 300,000 bushels, to 1.3 billion bushels.
The average guesstimate for US 2012-13 ending stocks was 660 million bushels, and the number came in at 650 million bushels, or 5.8% of consumption, all but right on the money. That compares with last month’s estimate of 1.183 billion bushels, or 9.3% of consumption.
The yield was the headline item and attracted some buying when the report hit the wire, pushing December corn to a new record high of $8.49 per bushel, but the euphoria did not last long. The market closed out the day down from the previous session (Chart 1). Buy the rumor...
Where does the market go from here? Enough respectable analysts believe that the crop is subject to more bad news and that yields will be revised lower yet again in the September crop report.
On the global front, Brazilian, Argentinian, and Chinese output was revised upwards by a combined 11 million tonnes. Those increases were mostly offset by crop losses in the other significant Northern hemisphere producers who were afflicted by drought as well.
Even if the USDA’s estimate for US output is already in the right ballpark – and it might be – demand will eventually become the pivotal issue. So far, there seems to have been some sticker shock. Old-crop US sales ground to a halt when prices began to rise. Consider this: Average weekly old-crop export commitments since the first week in June have been 127,000 tonnes. That’s very weak, even when compared with the same period last year, which also had very poor new old-crop sales. New old-crop sales for 2010-11 for the comparable period were 432,000 tonnes. In the previous two seasons new old-crop sales from early June through mid-August averaged 701,000 tonnes in 2009-10 and 695,000 tonnes in 2008-09.
The USDA responded by lowering its target from the July estimate of 40.67 million tonnes, to 39.37 million tonnes – but that won’t do the trick. We will not reach the downwardly-revised estimate. Shipments stand at 36 million tonnes, and with only three weeks left to the marketing year and shipments averaging about 500,000 tonnes per week, the final number will be about 37.5 million tonnes.
The USDA cut its estimate for 2012-13 global demand by 4.3% from the July estimate. That compares with a 6.2% drop in output, which will result in a drawdown in global inventories. Prices should move higher if there is evidence that the sticker shock that we’ve seen begins to wear thin, which we believe is going to happen, sooner or later.
Buy December corn on setbacks and place stops based on your risk tolerance level. There is very little in the way of meaningful assistance from the chart.