USDA report bullish for corn, soybeans U.S. corn ending stocks 2nd lowest rate since mid-1990s

Bali News Two of my recommendations since the beginning of last year and 2011 have been corn and soybeans. It appears that current shortages may lead to even higher prices in the future. I am currently long on both investments.

USDA report bullish for corn, soybeans
U.S. corn ending stocks 2nd lowest rate since mid-1990s
January 16, 2011 - By LARRY KERSHNER, For the Messenger
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For those with grain to sell, the U.S. Department of Agriculture's latest crop production and supply/demand report was good news.

For those with grain to feed or buy, not such good news.

The new report, issued Wednesday morning, had pushed corn futures up by as high as 28 cents by midday - $6.35 per bushel for March futures - and soybeans up by 66 cents, to $14.23 for March.

What was pushing the price was U.S. and world ending stock numbers, said Darin Newsom, DTN senior analyst, during a morning webinar prior to markets opening.

U.S. ending stocks for corn was whittled by the USDA report to 14.2 billion bushels, or about 5.5 percent.

"This is a very, very tight situation,"?Newsom said, adding that stocks were not this low since 1995. "Tightening stocks will continue to push markets up."

Newsom credited ethanol's continued demand increase as the largest growing sector of corn demand.

Even with the rising cost of corn, Newsom told Farm News he expected ethanol demand to remain consistent as long as petroleum prices remained high and gas demand was consistent.

"This is different than in 2008 when the petroleum price collapsed,"?Newsom said. "As gas demand goes up it requires more ethanol. The key is watching future spreads."

However if corn prices soar well into the $7 range, it may cause ethanol distillers to begin struggling, he said, but then added, "It may be that ethanol is getting used to the high prices.

"We're just not seeing the sharp reactions as in 2008."

Concern for dairy

For the dairy industry, Newsom said that although the class III milk market has stabilized, "it's still a difficult time out there.

"How long can it survive these higher prices in corn?"

He indicated that survival will depend on output prices somehow catching up to input prices.

He said that just within the first quarter of the fiscal year, 30 percent of the 2010 harvest has been exhausted.

World ending stock for corn was also lowered as worldwide demand for corn is also climbing, the largest seen since 1995.

Worldwide ending stocks is estimated 127 million metric tons, or about 15 percent - the lowest since the mid-1970s - which was much lower than analysts were expecting, Newsom said.

Part of this decrease, Newsom noted, was a drop in the expected supply from Argentina.

When asked if China will re-enter buying significant U.S. corn as it did last year, Newsom said "it's possible, but I'm not certain China will."

Soybean ending stocks dwindling

The total U.S. harvest has been once again reduced to 3.33 billion bushels, down from the previous estimate of 3.37 bb, and less than the final 2009 harvest of 3.36 bb.

U.S. soybeans stock estimates were reduced by USDA to 140 million bushels, about 42 percent. "This is about as low as its ever been,"?Newsom said.

He said that one thing that may be helping soybeans is that export demand for soybeans has showed signs of a slight slowing. The USDA's export estimate for this marketing year was unchanged at 159 bb.

However, residual uses was increased from 3.27 bb a month ago, to 3.55 bb on Wednesday.

Concerning worldwide ending stocks, soybeans are expected to dwindle further to 58.28 million metric tons, down to 22.8 percent..

He said the Argentinan supply was lowered this month by 1.5 mmt, to account for much of the lost stocks.

"It's not as tight as the corn stocks,"?Newsom said, "but global (soybean) stocks is at a critical point."

Acre wars commencing

When asked what it will take to replenish the corn and soybean larders, Newsom said that both grains and wheat are in need of more planted acres.

In corn alone, it will require 80 million acres to replace the corn supply, an increase of 8 to 10 million acres over 2010.

He expects that all three, not to mention cotton, rice and sorghum, will be able to see an expansion in planted acres.

"Something will lose out," Newsom said, "and I expect it'll be wheat."

Contact Larry Kershner at (515) 573-2141, ext. 453 or at kersh@farm-news.com.