The October USDA crop report for corn did not contain any extraordinary revisions from September data, although the market’s reaction – a 36¢-per-bushel rally – seemed to indicate otherwise.
There was some discussion about late rains salvaging some of the drought-ravaged corn crop as they did for soybeans, but the damage was done, and it was not realistic to expect much improvement. Analysts polled in the days leading up to the report estimated that harvested acreage would fall further, but yield would be bumped up. They didn’t get it quite right. The estimate for harvested acreage was raised by 300 million acres, to 87.7 million acres. The yield came in at 122 bushel-per-acre (bpa), down from the September estimate of 122.884 bpa. The crop estimate now stands at 10.706 billion bushels, 21 million bushels below last month’s estimate – in the grand scheme, a relatively small amount.
The estimate for 2012-13 US ending stocks fell to a 20-year low of 619 million bushels, or 5.6% of usage, down from the 733-millionbushel September estimate. The largest contributing factor was a near 200-million bushel downward revision of 2011-12 ending stocks, but that was known weeks ago – on September 28 – when the USDA surprised the market with a much lower-than-expected quarterly stocks figure.
In the meantime, export demand for US corn is almost nonexistent, at a time of year when harvest pressure depresses prices and foreigners are normally booking orders for the soon-to-be-harvested corn crop. US export commitments over the past four weeks averaged an embarrassing 100,000 tonnes – which included two weeks of near zero sales. In the same four-week period last year, average weekly commitments were just under 1 million tonnes. Actually, this year was not really an exception in regard to harvest pressure; it’s just that the “depressed” prices were still at record highs, as well as higher than those of other foreign origins.
The USDA lowered the estimate for 2012-13 exports by 2.5 million tonnes, to 29.2 million tonnes, which would be down an astounding 25% from last season and the lowest US export figure since the 1974-75 season. Total commitments for 2012-13 stand at 10.4 million tonnes, which is 43% below last year at this time.
The forecasts for all principal demand categories are dramatically below last year’s levels. Feed demand is estimated to fall by 9%, while ethanol is expected to be 10% lower. Unlike exports, where the pessimism is based on hard facts, US feed demand has not shown any weakness yet, which is precisely what the USDA’s eye-opening quarterly stocks report was about.
The harvest is almost complete, so it is unlikely that US crop forecasts are going to vary materially from the October estimate at this point. South American corn output, however, will now begin to play a larger role, than it ever has. In 2011-12 Argentinean farmers planned to harvest a record crop, but because of drought, production reached only 21 million tonnes, 16% below the previous season. Planting intentions are about the same for the 2012-13 crop. Weather permitting, that should yield a crop of 28 million tonnes and exports of 18.5 million tonnes.
At 70 million tonnes, Brazil’s crop will be smaller than last year, but with exports of 16 million tonnes it is still the third-largest exporter behind the US and Argentina. But with the history of crop-altering erratic weather swings in South America, the estimates of export availability are all conjecture at this time.
So that leaves us with two major wild cards. Any glitches in South America, and even a small uptick in global demand, will tighten the market further. As it stands now, global ending stocks are estimated at 13.74% of consumption, their lowest level since 1973-74.
Maintain long positions and raise stops to $6.95 per bushel, basis December, close only.
