Heading into the March 28 USDA quarterly stocks report, U.S. 2012-13 ending stocks were forecast to drop, from 989 million bushels in 2011-12, to 632 million bushels, or 5.6% of consumption, the lowest level in 17 years. As we detailed in our last report on corn (Focus on Futures, March 18), despite the fact that U.S. exports have been anaemic all through the marketing year, strong domestic demand had “seemingly” tightened the market. Old-crop prices remained stubbornly high, and spot was commanding a hefty premium over futures.
The quarterly stocks report dispelled any such notion: The USDA reported March 1 stocks at 5.398 billion bushels, close to 400 million bushels above the average of analysts’ guesstimates. That was a huge miss.
The response was appropriate — prices fell the 40¢-per-bushel daily trading limit, gapped lower the following day, and have since dropped to about $1 per bushel below the settlement price of the session prior to the report (Chart 1).
To say that the report was a surprise is an understatement. Explaining the sharp divergence from the hard evidence of very strong spot premiums — which incidentally continue to hover at about pre-report levels — presents a bit of a challenge. The USDA — in the words of analysts — “found” the 400 million bushels. One theory is that domestic demand has in fact been just as strong as the spot premiums indicate, but that the drought-stricken 2012-13 crop was actually underestimated.
If the USDA stands by the data, the estimate for ending stocks should jump by a similar amount in the April 10 monthly crop report, to over 1 billion bushels. That would alter the landscape significantly. If there are no major changes in all other categories, that would see stocks as a percentage of usage climb to about 11.5%, a far more comfortable zone. There have been instances, however, in which the quarterly stocks report was inconsistent with the crop report that followed. While not quite as dramatic, a year ago, the quarterly stocks report was 140 million bushels below expectations, but the estimate for April ending stocks was virtually unchanged from the March estimate.