The United States has ample, exportable supplies on hand in several major commodities at the same time world supplies in those commodities are falling. This could be positive for U.S. exports of rice, corn and soybeans in 2005-06, according to a market analyst.
Charlie Ross, a broker with Rosenthal Collins Group, LLC, and president of Ross Risk Management, LLC, a cash grain and cotton marketing service, talked about the implications of USDA's May 12 World Agricultural Supply and Demand Estimates on U.S. commodity prices at the Ag Market Network's May teleconference.
Here are highlights of the report and Ross's analysis:
Corn: In its May 12 supply and demand estimates, USDA projects that 2005-06 U.S. corn use will expand, as higher exports will offset the decline in domestic use, which is down 40 million bushels, due to reduced feed and residual use. Feed and residual use declined because of increased use of non-grain feed ingredients.
Food, seed and industrial use in corn is up due to increased use to produce ethanol. Corn exports are up 150 million bushels because of less competition in the world.
U.S. corn acres are expected to be up slightly, with yield averaging 148 bushels per acre, 12 bushels less than last year's 160-bushel yield.
With supplies exceeding use, ending stocks of U.S. corn are projected at 2.54 billion bushels, up 325 million bushels from last year, the largest since 1987-88. The projected price range for corn is $1.55 to $1.95, compared to $2 to $2.10 for last year.
USDA also projects a decrease in world production, lower use and a moderate drop in corn stocks, especially in China. “Ending stocks are expected to drop from 44.85 million metric tons to 25.6 million metric tons, a decrease of over 19 million metric tons,” Ross said. “This could change some export pictures. The bottom line is that we need to produce a big crop in the United States.”
If China does become a significant importer of corn this year, “it's not all gloom and doom for corn in terms of our production and the world's needs. We're approaching some value levels in corn.”
Soybeans: Highlights of the USDA report on soybeans include an ending stocks projection of 290 million bushels. This is lower than previous estimates because of an increase in crush and exports.
Large U.S. soybean supplies combined with lower-than-expected Brazilian stocks this fall are expected to boost U.S. soybean exports to record levels, projected at 1.125 billion bushels in 2005-06.
Globally, oilseed production is expected to decline for the second straight year, the first time this has happened since 1995-96.
“The United States has been reducing stocks at a very rapid rate,” Ross said. “That leaves us with no room for error this year in the U.S. soybean crop. We still have all the weather ahead of us, and who knows what's going to happen with rust. It's getting to be a very interesting market for soybeans.”
Ross says that November beans under ideal growing conditions could slide to $5.50 on the downside. If weather is less than favorable, rust takes a toll on the crop and the funds start aggressively purchasing, November could approach $7, and possibly higher.
Rice: U.S. rice production is projected at 225 million hundredweight for 2005-06, 5.8 million hundredweight below last year's record. Planted area is estimated at 3.35 million acres, up slightly from last year. Rice yields are projected at 7,651 pounds per acre, down 191 pounds per acre from last year's record crop.
The lower yield is based on trend-line yields, “but I don't know if I trust it that much because our yields have been increasing almost every year,” Ross said.
Rice domestic and residual use for 2005-06 is projected at a record 126.2 million hundredweight. Exports are projected at 120 million hundredweight, which would be the second-largest export level on record. Ending stocks of 32.7 million hundredweight would be 6.7 million hundredweight below 2004-05.
“U.S. rice prices are expected to continue to be supported by tight global supplies and firmness of international prices. The projected seasonal price for 2005-06 is $7.20 to $7.50 per hundredweight, compared to $7.20 to $7.40 per hundredweight for last year.
“We're going into the sixth consecutive year of lower world stocks in rice. That's a very important factor. We're still going to be left with some high stocks here in the United States for now.”
On the other hand, the U.S. crop is less than 2 percent of the world crop, “so we're a very small factor in the global situation. Global ending stocks are now at the lowest levels since 1982-83 and the stocks-to-use ratio is projected at 16.5 percent, down from 18.1 percent in 2004-05, the lowest since 1976-77.
Ross noted that if a deal to ship long-grain rice to Iraq comes through, the shipments could range from 360,000 metric tons to 420,000 metric tons. “If the figure turns out to be around 300,000 metric tons, that's 6.6 million hundredweight.
“The United States now has 23 million hundredweight in long grain ending stocks. So without the Iraq factor, with the tight global stocks, rice is still probably a little cheap where it is. If Iraq comes in like we think it will, rice will move higher.”