A bearish confirmation of the markets' outlook sent the grain complex down pretty hard on Monday. Tuesday followed up with another slide, although there was an attempt at a late session rally.
As Darin Newsom pointed out in his column following the report, now that the smoke has cleared, the reports did nothing more than solidify the trends and, in the case of soybeans, kick it into hyper speed.
But they did raise -- perhaps resurrect is a better word -- questions about the crops' supply and demand tables. If corn stocks are really 3.85 billion bushels, is the 5.3 bb of feed demand for the 2013-14 crop year still valid?
DTN's analysts have written many times about how the math on the feed number seemed a little out of place. The cattle herd is at a historic low. Hog farms are struggling to fend off the PED virus. At corn's low price (especially compared to wheat), the animals might eat more it in their rations, but the feed consuming units just aren't there.
In a webinar Tuesday morning, University of Illinois ag economists Darrel Good and Scott Irwin explained that they dropped their feed forecast by 100 million bushels following the stocks report. They also tweaked their ethanol use figure upwards by 25 mb and trimmed exports by 25 mb. Those changes would boost the ending stocks figure to 1.25 billion bushels with a stocks-to-use ratio of 9.2%, compared to the June WASDE estimates of 1.15 bb and 8.4%. Prices will likely remain below USDA's average price of $4.55.
It seems the question surrounding new-crop corn is the perpetual one this time of year: will corn yields meet or exceed trendline estimates for the first time in years? Right now, Irwin and Good say the market is pricing in a yield in the mid-160s. All in all, it looks like ending stocks will increase to 1.69 bb with a stocks-to-use ratio of 12.6%. That scenario puts the average corn price at $4.15. If the national average yield ends up closer to 170 bpa, corn prices would average less than $4, perhaps $3.85, Irwin said.
There are also questions floating around about drowned out acreage in the northwestern Midwest, and the FSA's prevent plant acreage reports will be watched with interest.
The question on old-crop soybeans: where did this increase come from -- imports or domestic production? We're going to have to wait for that answer, but we'll get an idea soon enough. June 1 stocks, at 405 mb, were higher than the average trade estimate. The demand side of the soybean table over the last quarter has appeared to be robust on expanded export demand in the off-season. So, analysts look to the supply side. We know the U.S. has dramatically increased soybean imports this year, so it's quite possibly the source of extra beans. We also know that USDA does a full reconciling of soybeans in the September Grain Stocks report, and has a history of revising the previous year's production number, like it did for the 2012 crop. Irwin said it's very hard to predict changes based off of one quarter's surprising stocks report, and users will have to wait and see. It'll also be worth watching how USDA accounts for those bushels in the next WASDE report.
How low can new-crop soybean prices go? Irwin and Good think the average price could be $10.25. With increased acreage and, like corn, the potential for a record yield above 44 bpa, ending stocks could be 380 million bushels with a stocks-to-use ratio of 11%. That's the largest since 2006.
We will get USDA's opinion on how the Acreage and Grain Stocks figures change the supply and demand outlook on July 11 at 11 a.m. CT when the next WASDE report is released. In the meantime, enjoy your holiday weekend.