It was widely expected that the USDA would slash its estimate for planted corn(CBOT:CU13) acreage in its June 12 monthly crop report. Although it would have been an unusual move for the USDA to do so between planting-intention reports – the next one was scheduled for release on June 28 – it was an unusually wet spring. Planting delays meant that farmers might not get into their fields before the seeding window in some regions would close. It was quite a surprise then when the USDA left the acreage estimate virtually unchanged from the May estimate, at 97.3 million acres. The bushel-per-acre (bpa) yield was lowered, but only marginally, by 1.5 bpa, to 156.5 bpa. If realized, that would put the crop at a record 14.005 billion bushels, topping 2009-10 output of 13.092 billion bushels.
It was more of the same in the July crop report. Traders were expecting some confirmation of compromised acreage and crop damage. The USDA actually raised the acreage estimate slightly. The abandonment rate was increased, but only by enough to bring the crop estimate down by a marginal amount, to 13.950 million bushels – which would still be a record crop.
In the meantime, December new-crop corn has been swinging back and forth to the tune of the latest forecast. Traders are now focused on forecasts for a couple of weeks down the road when the crop will enter the key pollination period.
The most recent weekly crop progress report put the good-to-excellent portion of the crop down two percentage points from the previous week, to 66%. That is still fairly high when compared with the five-year average of 61% and particularly comforting when compared with last year’s disastrous 31%. An exceptionally hot stretch in the Midwest, however, has prompted private forecasters to cut their estimates even before the pollination period arrives. One estimate revised the crop down by 25 million bushels from the USDA July estimate. If that were the extent of it, then there is not much to worry about. There’s still a long summer ahead, though.
On the demand side, U.S. exports for 2012-13 reached only about one third of their normal level. It was not a reflection of world demand, though, but rather the simple fact that with such a small crop, there wasn’t any more to sell. Ever since ethanol began to account for a significant percentage of corn usage, combined domestic feed and industrial usage consumed about 85% of output, with the balance going to the export market. In 2012-13 that figure rose to 97%, meaning that more than half the paltry amount that was sold overseas came from ending stocks.
As we wind down the 2012-13 marketing year, export commitments stand at a laughable 737 million bushels, against the USDA target of 700 million bushels. The average of the previous five years was close to two billion bushels. There are six weeks remaining in the marketing year. With shipments-to-date at 620 million bushels, we should just make the USDA forecast.
Looking ahead, advance export commitments for 2013-14 are about 300 million bushels, almost half of the entire current marketing year. That’s at the high end of the range for this time of year. So we’re off to a decent start. The most recent weekly tally of more than 60 million bushels was larger than any single week in all of the 2012-13 season. So it would seem that foreign demand has at least stabilized.
Global ending stocks for 2013-14 are estimated at 16.2% of consumption. That compares with 14.3% for 2012-13, but represents no improvement over the five-year average. Strong demand will not be a surprise, though, because the USDA is already forecasting record global consumption that, if achieved, will be 11% higher than the five-year average. So it all comes down to the US crop. If the weather is favorable, we will see new-crop prices continue to drift lower.
We were stopped out of long position at $5.05 per bushel, as per our May 9 recommendation. From the case presented above, it would seem that a short position would be in order. We caution, however, that any glitch in the weather will be painful, so we prefer to stand aside for the moment.