USDA's January assessment of the 2005 season and supply/demand estimates for the 2005-06 marketing year includes higher production for corn and soybeans, weakening exports for soybeans and higher ending stocks than last month's projections for both crops.
The January crop production report estimated 2005 soybean production at 3.09 billion bushels, up from last month's total of 3.04 billion bushels and down from last year's total of 3.12 billion bushels. The corn crop was estimated at 11.11 million bushels, up from last month's 11.03 billion bushels and down from last year's estimate of 11.81 billion bushels.
Soybean ending stocks were estimated at a surprising 505 million bushels, up from last month's 405 million bushels. Corn ending stocks were estimated at 2.43 billion bushels, up from last month's 2.42 billion bushels. Wheat ending stocks were estimated at 542 million bushels, up from last month's estimate of 530 million bushels.
According to Jack Scoville, vice president, Price Futures Group, the production estimates were in line with trade expectations, “but the real issue was what happened on the demand side of the ledger. USDA didn't find a lot of new demand, so ending stocks estimates were as high as or higher than trade projections. The number that sticks out are ending stocks for soybeans, at 507 million bushels.”
Speaking at a Chicago Board of Trade press briefing, Jan. 12, Scoville noted, “It really points out that we have a lot of competition from South America for soybeans. In addition, USDA increased production in South America by about a million tons, despite some dry weather down there. There is going to be plenty of supply to meet any level of demand around the world. There is nothing really for the bull to hang his hat on.”
One bright spot in the report is the winter wheat seedings estimate, according to Scoville. “Seedings were a little below the lowest trade guess. Hard red winter is down significantly from the average trade guess, due to dry conditions.”
“The wheat seedings number is relatively supportive to futures,” added Joe Victor, vice president, Allendale, Inc. “At the same time, ending stocks are little higher that what the trade was estimating.”
On the effect of nitrogen prices on U.S. corn acres in 2006, Victor noted, “There is a possibility of fewer corn acres and more soybean acres in the Dakotas. Ultimately, we could see less spring wheat and more soybeans in that region. If there is going to be an explosive situation in any of the three grains, it would have to be in the wheat market.”
Allendale projects a total shift from corn to soybeans in the United States of 1 million to 1.5 million acres. Soybean crush continues to reflect strong domestic demand, according to Victor. “We should be adding between 4 million and 14 million bushels on crush, long term. But exports are where we are bleeding the most. We are 20 percent behind the five-year average on soybean and soybean oil sales.”
Ethanol use is trending upwards, but can't work down corn stocks by itself, according to Victor. “Good cash prices for hogs and cattle suggests good domestic demand for grains.”
Victor noted that bearish reports were released by USDA in November and December 2005, “and we still rallied prices. Funds are the wildcard. Be ready to take another wild ride. The funds are not done with this grain market by any stretch of the imagination.
“The market is going to struggle as it strives to rally higher. The downside is limited because we've been expecting a bearish report and we got one. Just about all the bad news is already factored in.”