US cuts hopes for 2011-12 rebuild in crop supplies

The US Department of Agriculture has cut hopes for a rebuild in crop stocks in 2011-12 - with corn inventories to stay below 1bn bushels – presenting a squeeze sufficient to give farmers record prices for major crops.

However, the data failed to prevent a further slide in crop prices, depressed by continuing liquidation by funds in the face of Middle East unrest, which sent Brent crude to $119 a barrel at one point. 

Joseph Glauber, the USDA's chief economist, forecast "continued high costs" for grains as even a jump of 9.8m acres in American sowings of major crops expected for this year – the largest increase for 15 years - fails to ease significantly tight supplies.

"Even with additional supplies expected this year, it is likely that the tight stocks to use situation will not be entirely mitigated over the course of one or even two growing seasons," he told the USDA Outlook Forum.

The squeeze, while set to keep margins for livestock producers at "low levels", will present growers with even bigger prices, which will in corn, cotton, soybeans and wheat reach record levels.

Cut to corn stocks guess

The growth in sowings would be led by corn, Mr Glauber said, firming up a preliminary USDA forecast revealed last week, in the so-called "baseline" report, of a rise of 3.8m acres to 92m acres in sowings.

Key USDA estimates for US corn 2011-12 and (change on previous)

Sowings: 92m acres (unchanged)

Production: 13.73bn bushels, (-25m bushels)

Ethanol use: 5.0bn bushels, (+125m bushels)

Change in year-end stocks: +190m bushels, (previous +300m bushels)

Comparisons with USDA baseline forecasts

However, even assuming a trend yield of 161.7m bushels per acre, bringing the total harvest to an all-time high of 13.7bn bushels, a significant rebuild in inventories would be prevented by strong exports and firm demand from ethanol producers

Favourable tax treatment means "the incentive for ethanol blending remains strong… and ethanol [is] expected to remain attractive priced relative to gasoline", Mr Glauber said.

US corn stocks will see a "modest" increase to 865m bushels over 2011-12m a cut of 262m bushels on last week's estimate, and representing a historically "tight" level of 6.4% of consumption.

'Tight as well'

Soybean stocks will "remain tight as well", Mr Glauber said, despite a fall in exports in the face of "renewed competition" from Argentina and Brazil, and marginally lower domestic use than had been pencilled in.

USDA estimates for US soybeans 2011-12 and (change on previous)

Sowings: 78m acres (unchanged)

Production: 3.345bn bushels, (-10m bushels)

Use: 3.34bn bushels, (-10m bushels)

Change iin year-end stocks: +20m bushels, (previous +5m bushels)

Comparisons with USDA baseline forecasts

With sowings limited to a small rise to 78m acres by the rush for corn, inventories will rebuild by a modest 20m bushels to 160m bushels.

"The stocks-to-use ratio is still estimated to be below 5%, indicating a tight market," he said.

 Yield losses

Wheat will end 2011-12 with a stocks-to-use ratio – a key measure of the readiness of a crop's supply and therefore its price potential – of 28.3%, a relatively lax figure, if the lowest since 2007-08 in the run up to the last crop price spike.

USDA estimates for US wheat 2011-12 and (change on previous)

Sowings: 57m acres (unchanged)

Harvested area: 47.5m acres, (-1.0m acres)

Production: 2.08bn bushels, (-45m bushels)

Use: 3.34bn bushels, (-10m bushels)

Change in year-end stocks: -155m bushels, (previous -130m bushels)

Comparisons with USDA baseline forecasts

Nonetheless, the figure is lower than the 30.4% proposed in the preliminary estimates, and reflected some allowance for the impact of a dry weather on southern Plains states.

"Despite higher planted acreage, wheat production will be affected by dry weather since last fall in the hard red winter growing region and by a return to more normal yields this year," Mr Glauber said.

Price forecasts

He added that, for wheat, the average farmgate price would reached a record $7.50 a bushel, "although prices will likely moderate in the late summer and fall as spring planted crops in the Northern Hemisphere come to market".

Indeed, stronger competition in export markets, after a series of poor crops in 2010-11 will limit US wheat exports to 1.15bn bushels next season, a fall of 12%.

Farmers will receive a record $5.60 a bushel for corn, of $13.00 a bushel for soybeans, and of 110 cents a pound for cotton.

Growers' receipts were trimmed this season by the forward sale of much of their crop before the rally in futures prices began last June.

'Dicey year' 

Among analysts, the data were viewed as underling the tightness of US crop supplies.

"With these acres it again will be a dicey year," US Commodities said.

"Yields cannot be reduced or we will have the same situation as this year.  We will need good growing conditions."

Benson Quinn Commodities said: "The projected stocks to use ratio of 6.4% in corn is not real comforting as weather risk premium will likely be a big factor during the growing season."

Nonetheless, Chicago prices continued a decline as Middle East unrest raised concerns over the global economy, and fed a switch in investors from grains to oil.

Chicago wheat closed down 2.2% at $7.41 a bushel, while corn fell 1.1% to $6.80 a bushel and soybeans lost 0.2% to $13.20 a bushel, all for March delivery.

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