Will there be a surprise in Monday's Grain Stocks report?

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Will acreage estimates or grain stocks estimates on Monday have a greater impact on the commodity market?  Most of the market participants have anticipated increased soybean acreage and reduced corn acres, and many of the pre-report estimates have confirmed their expectations. 

However, the market is quite uncertain about the amount of grain stocks on hand, and in the past it has proven to be a significant market mover, whether bearish or bullish.  We’ll explore the Quarterly Grain Stocks report, set for March 31 release.

Many dynamics are involved in the push and pull of grain stocks, including exports, livestock consumption, biofuels, and even the uncertainty of “residual.”  Currently, the numbers ahead of the report look like this:

 

Trade Ave.

Trade range

Dec 1 2013

Mar 1 2013

Corn

7.099 bil.

6.861-7.540 bil.

10.426 bil

5.400 bil.

Soybeans

0.989 bil.

0.955-1.087 bil.

2.148 bil.

0.998 bil.

Wheat

1.042 bil.

0.985-1.115 bil.

1.463 bil.

1.235 bil.

Corn Stocks

Corn stocks have been hard to estimate in recent years, says University of Illinois marketing specialist Darrel Good, and sometimes estimates have been some distance from where USDA projects stocks on hand.  Subsequently, Good says with the difficulty of coming close to where USDA might be, there is some value in estimating levels of stocks that would be consider neutral to the market.  He says, “A stocks estimate that would be neutral for corn prices is one that implied that feed and residual use of corn during the first half of the marketing year supported the USDA’s forecast of 5.3 billion bushels of feed and residual use for the entire marketing year. Even that calculation is difficult to make, however.”

He says the reason for difficulty in estimating what USDA will project stems from the wide variation in the amount of corn used for feed use in the first half of the marketing year.  With half of the year behind, the volume of stocks estimates would normally be indicating half of the feed that has been fed.  In the last approximately 10 years, that volume has ranged from 66% to 70%.  In the prior 10 years it ranged from 62% to 66%.  But in the past 3 years it has averaged from 73% to 76%.  And Good says, “The increase in feed and residual use of corn during the first half of the marketing year and the sharp decline in use during the last half of the year are difficult to explain.”

He offered a couple of dynamics that might be the reason for the variations:

  1. Some of the seasonal shift in feed and residual use of corn may be associated with high corn prices and increased feeding of other grains, particularly wheat, during the summer quarter.
  2. The shift in some years, particularly 2011-12, may also be associated with early harvest and the resulting shift in calculated feed and residual use from the summer quarter into the fall quarter.
  3. In 2014, any late planting due to the weather may prevent early harvested corn from being used in the 4th quarter, and Good says, “The percentage of feed and residual use of corn during the first half of the current marketing year, then, might be expected to be smaller than the 74 percent in recent years.”

Given the estimated percentage of feed and residual use, Good calculates other volumes to arrive at a March 1 stocks figure of 7.147 bil. bu.

  1. If the USDA’s 5.3 billion bushel projection of feed and residual use of corn for the year is correct, and 70 percent was used during the first half of the year, use during the second quarter of the year would have totaled 1.284 billion bushels.
  2. Based on Census Bureau estimates for December 2013 and January 2014 and USDA export inspection estimates through February 2014, corn exports during the quarter were likely near 396 million bushels.
  3. Based on estimates of ethanol production during the quarter, corn used for ethanol production was likely near 1.265 billion bushels.
  4. Corn used in other domestic food and industrial processing should have been near 340 million bushels, resulting in total use of 3.285 billion bushels.

Soybean Stocks

The Quarterly Stocks report for soybeans will likely focus more on exports as a driver of the carryout than any other soybean use.  Darrel Good says calculations of March 1 stocks has to include the potential for imported soybeans in addition to the December 1 stocks.  From that estimate, the 3 primary soybean uses are deducted.

  1. USDA export inspection estimates for the December-February quarter totaled 703 million bushels. However, Census Bureau estimates for December and January exceeded the inspection estimates by 16 million bushels. Assuming that margin persisted through February, exports for the quarter were near 719 million bushels.
  2. The soybean crush is now only available from the National Oilseed Processors Association.  That procedure results in an estimate of 486 million bushels for the crush during the December-February quarter.
  3. The last category is seed, feed, and industrial.  Good says, “Our calculation of use in this category during the first quarter of the 2013-14 marketing year was a record large 187 million bushels. That estimate points to a small forecast for the second quarter. If the   total for the two quarters was near the 10-year average of 165 million bushels, second quarter use would have been near -22 million bushels.

Good says total soybean stocks use during the second quarter point to 973 million bushels on hand March 1. “However, an estimate that differs by as much as 25 million bushels in either direction from that estimate probably should not be considered a surprise given the historic variation in feed, seed, and residual use during the first half of the marketing year.”

Summary:

For corn, Darrel Good is estimating March 1 stocks at 7.147 billion bushels.  That is based on feed and residual of 1.284 bil., exports of 396 mil., ethanol use of 1.265 bil., and 340 mil. for other domestic and industrial use.  For soybeans, Good is estimating March 1 stocks at 973 million bushels.  That is based on exports of 719 million, crush of 486 million, and a -22 million for seed, feed, and industrial, which would signal a potential increase in crop production.

Source: Farmgate Blog



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