USDA released Crop Supply and Demand Reports on July 12. Here’s an analysis by Rich Pottorff, chief economist with Vance Publishing’s Doane Advisory Services.
CORN: USDA boosted corn exports and domestic use for the 2005/2006 season, reducing ending stocks by more than 100 million bushels, to 2.06 billion. This comes on top of a 50 million bushel reduction from May to June. The late June stocks report showed that feed use was higher than the amount USDA’s June forecast, resulting in a 100 million bushel boost in this July report.
The export forecast also was boosted another 50 million bushels. With USDA’s robust demand scenario for 2006/2007, corn-carryover stocks will fall by nearly 50 percent, to less than 1.1 billion bushels.
On top of that, the current weather forecast indicates some stress on the crop right at pollination. If yields fall short of trend, corn prices could rise significantly over the rest of this summer.
SOYBEANS: USDA raised expected soybean use for the 2005/2006 season, thereby reducing projected carryover stocks to 545 million bushels. However, even the new, lower projection will still be record high.
USDA updated 2006 soybean planted acreage to the 74.9 million acres. This change trimmed production by 70 million bushels compared to the June forecast, to 3.01 billion bushels. The combination of lower beginning stocks and a smaller crop cut projected 2006/2007 ending stocks by almost 100 million bushels from the June forecast to the July forecast. But again, it will still be higher than the 2005/2006 record. That assumes demand for 2006/2007 will be nearly 200 million bushels higher than is projected for this 2005/2006 season based on USDA’s forecast for a 20 percent increase in exports. Such a large increase will be hard to reach.
Unless weather turns adverse and cuts yield potential, further cuts in projected 2006/2007 ending stocks are unlikely. It’s more likely that they will work higher. Bottom line: Prices should continue to be volatile this summer, but it will take actual damage to the crop to push prices much beyond current levels.
WHEAT: Bad weather has cut expected wheat production to 1.81 billion bushels for 2006. That’s down 8 million bushels from last month, and nearly 300 million bushels below a year ago. Beginning stocks for 2006/2007 were revised up from June to July to coincide with the June stocks report data.
With hot weather headed for the key spring wheat growing area this week, the production estimates could decline even further in the months ahead. USDA projects a 100 million bushel year-to-year drop in U.S. wheat exports-- to 900 million bushels in 2006/2007. We think actual exports will be higher and wheat carryover stocks will drop below 400 million bushels in 2006/2007. Throw in a strong seasonal tendency for price strength into fall and the outlook is pretty firm.