April supply-demand report shows unexpected dynamics in corn

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With a short crop in South America and consumption at a faster pace than earlier reported, it would have been natural to think that USDA would reduce the corn carryout at the end of the marketing year. But a couple of surprising dynamics stepped in to sway the crop statisticians in another direction, and the April Supply Demand Report remained unchanged from March.  But what could possibly have interceded?

When USDA’s April World Agricultural Supply and Demand Estimate was released, there were few surprises, but the ultimate outcome for corn was unexpected by many. The report came on the heels of the March 30 Grain Stocks report, which had indicated greater disappearance of corn during the prior quarter than the market had expected. Additionally, recent crop estimates from South American had been pushing international corn buyers to the U.S. Conventional wisdom would have said the carryout at the end of the current marketing year in August would have declined from the 801 million bushels forecast in March. But the April estimate retained the 801 million bushel carryout.

The reason for the unchanged number, said the USDA’s World Agricultural Outlook Board was the early U.S. corn planting effort which would put the new crop into the pipeline before the old crop year is finished. Consequently there would not be any shortfall. Additionally, the agency said the good new crop of wheat in the US and in many locations around the world would push wheat prices below that of corn and spur livestock feeders to replace corn with feed wheat. Subsequently, the corn carryout was not lowered despite reasonably supportive fundamentals. The only change made by USDA for the April WASDE report was to tighten the range of cash prices for the marketing year to $6.00 to $6.40. Ethanol used remained at 5.0 billion and livestock feeding at 4.7 billion. 

USDA made changes in the soybean balance sheet which pushed the carryout down t 250 million bushels. Soybean exports are expected to increase by 15 million bushels, and the domestic crush will increase by the same amount. With the carryout tightening, the average price range was reset to $12 to $12.60. Global oilseed production was forecast down by 5.2 million metric tons, reflecting lower production in South America.

Wheat ending stocks were reduced by 32 million bushels, following a 35 million bushel increase in the use of wheat for feed. Wheat exports were unchanged. USDA narrowed the average price range by a nickel to $7.20 to $7.40 per bushel. Globally, wheat supplies were cut by a half million metric tons. Production increases were offset by a rise in wheat feeding, including, an increase in wheat feeding in china along with a decrease in Chinese wheat stocks. Globally, wheat consumption is up to 2.8 million metric tons.

For livestock, USDA raised the estimate for total red meat production. Beef production is slightly higher, the pig crop will be up, and broiler production is up. Beef exports were lowered, but pork export estimates were raised. Both the hog and cattle price estimates were lowered from last month.

Summary:
USDA’s April Supply and Demand Report indicated the lower crop production in South America would have a positive impact on U.S. corn and soybean exports. While U.S. soybean export estimates were raised with a net decrease in soybean supplies, the corn supply was kept steady. USDA said the corn carryout would not change because wheat would replace some corn from being fed to livestock and some of the new crop would be harvested before the only crop year ended, replacing some of the diminished stocks. 


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