USDA Report Bearish Corn and Wheat, Neutral-Bullish Soybeans

Corn was the biggest surprise in this version of the January USDA World Agriculture Supply and Demand Report. The market was expecting a reduction in acreage or yield based on the 5% of the US corn crop remaining in the field. The market was expecting corn production to total 12.8bln bushels down from the December report of 12.9bln bushels. The January estimate totaled 13.151bln bushels well above both the estimate and previous report based on higher yield prospects. The January yield estimate was 165.2bpa vs. the December report of 162.9bpa and the pre-report estimate of 162.5bpa. Usage was higher than expected as feed usage increased. Corn feed and residual use was projected 150 million bushels higher based on September-November Disappearances as indicated by December 1 stocks. This was partly offset by a 10 million bushel reduction in food, seed, and industrial use reflecting lower-than expected September- November shipments of high fructose corn syrup. Overall ending stocks are projected at 1,764 million bushels, up 89 million bushels from the December report of 1.675bln bushels and well above the expectations of 1.6bln bushels. The current ending stock level is the largest since 2005-2006. However because of the higher usage, stocks as a percentage of use are down year-to-year at 13.5% compared to 13.9% for 2008/09. As for the December quarterly grain stocks totaled 10.934bln bushels vs. the expectations of 10.7bln bushels and the December 2008 report that totaled 10.08bln bushels. The 2009/2010 market year average corn farm price is projected at $3.40 to $4.00 per bushel up 15 cents on both ends of the range.

Soybeans estimates were also relatively surprising. The USDA January production estimate was 3.361bln bushels vs., the expectations of 3.34bln bushels and the December report that totaled 3.32bln bushels. Production was increased based on higher yield estimates. The January Soybean yield estimate totaled 44bpa vs. the estimate of 43.5bpa and the previous December estimate of 43.3bpa. Production was offset by a 35 million bushel increase to exports to a record 1.375billion bushels led by strong sales and shipments to China and several other markets including Taiwan, Thailand, Egypt, and Canada. The projected soybean crush was also raised 15 million bushels to 1.710 billion reflecting increased soybean meal exports. Overall projected ending stocks totaled 245 million bushels vs. the expectations of 240 million bushels but below the December report of 255 million bushels. Despite increased crush, soybean oil production is reduced due to a lower extraction rate. With use unchanged soybean oil stocks are projected at 2.152 billion pounds, down 155 million from last year. As for December quarterly grain stocks, soybean stocks totaled 2.337bln bushels vs. the expectations of 2.4bln bushels and the December 08 total of 2.276bln bushels. The U.S. season-average soybean price range from 2009-2010 is projected at $8.90 to $10.40 per bushel up 15 cents on both ends of the range.

For another consecutive report wheat supplies continue to increase painting a very bearish picture fundamentally. US wheat ending stocks were projected 76 million bushels higher totaling .976bln bushels vs. the estimates of .91bln bushels and the December report of .90bln bushels. Feed and residual use is projected 20 million bushels lower as December 1 stocks, reported in the January grain stocks indicate lower than expected disappearances during September-November. Seed use was also lowered 6 million bushels based on winter wheat planting area reported in the Winter wheat seedlings. Exports are projected 50 million lower reflecting the slow pace of shipments and the strong foreign competition as the US wheat price is relatively high. At the current export level of 825 million bushels this would be the lowest total since 1971/72. The projected marketing year average farm price is narrowed 5 cents on both ends of the range to $4.70 to $5.00 per bushel. Globally wheat supplies also increased by 2.5 million tons due to an increased output by Russia. 2010 wheat plantings were announced and seeding totaled 37.097million acres well below the expectations of 41 million acres. This should be supportive wheat following yet another bearish fundamental report.

This report will be viewed as BEARISH corn due to the increase in production based on an increased yield. The market was looking for a reduction in harvested acreage and production based on the quality issues experienced this fall and the 5% of US corn remaining in the field. A positive was an increase in feed usage that no one was expecting, and a lower stock to use ratio. The Soybean report will be view as NUETRAL-BULLISH as the ending stocks decreased from the December report but were above expectations. Ending stocks remain relatively tight at the current level and with this years export sales there is a greater risk that these stocks may tighten as we don’t see any greater revisions to the US production and we continue to forecast stronger demand in 2010. This report will be seen as BEARISH Wheat as supplies both in the US and globally continue to rise. Wheat should find some support from the prospects of lower winter wheat plantings moving into 2010, however US old crop wheat continues to be slow moving and stocks are on the rise.

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