Market Matters Blog

The old crop corn market tanked 95 cents in the three days following USDA's bearish quarterly stocks report on Thursday. That's nearly a 13% haircut. Analysts and traders are trying to figure out where the unexpected 370 million extra bushels came from, and they're looking forwards to how USDA will justify it in the April supply and demand report.

The miserable export pace and unprofitable ethanol crush margins are well documented woes and most of USDA's recent adjustments have come from the feed and residual column. Take, for example, the smaller than expected quarterly stocks figure last December. It prompted USDA to revise its feed and residual use projections upwards by 300 mb in February's WASDE. One of the few changes USDA made in its March WASDE was another upward revision to the feed and residual category, this time 100 mb.

"The implied rate of feed and residual use of corn in the first half, and particularly in the second quarter, of the 2012-13 marketing year is quite low," University of Illinois ag economist Darrel Good stated in a recent blog (http://bit.ly/…). "The slow rate of feed and residual use does not seem consistent with livestock numbers, a sharp reduction in the production of distiller’s grains, and the implied negative feed and residual use of wheat during the same six month period."

Another livestock economist agreed and told me that livestock numbers don't back up assertions of drastically lower feed demand. The latest Hogs and Pigs report is a prime example, it shows modest industry expansion along with a slightly larger supply of market hogs than traders expected.

USDA could attribute the increase to higher corn production last year than it previously estimated, or, if it does trim the feed category, it will likely come from the residual side of the ledger.

"I could see the April WASDE corn feed use number being lowered, but it can only come out of residual and not actual feed use," he said. "If we tighten corn feed and residual use much, we can rename that category feed use only as residual will be zero."

Either demand was destroyed somewhere or USDA found more corn. There could be a correction in the June Quarterly Stocks report, as Good points out. For the first time in a long time, traders will watch April's report closely.

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