October Supply and Demand Report Recap

USDA released their monthly Crop Production and World Agricultural Supply and Demand Estimates report yesterday morning (Wednesday, Oct. 12). The report was not a big surprise to any crop, but could be viewed as slightly bearish for corn, cotton, and wheat and slightly bullish for beans.  Futures reacted in this manner with corn, cotton, and wheat all down at yesterday’s close but soybeans were up.  Wheat and cotton took the bigger hits in yesterday’s futures market while corn and soybean movement was minimal.

Now to the report… Corn yield is currently projected at 148.1 bushels per acre (bu/ac) which is the same as last month’s report but lower than the 148.8 expected by market analysts.  Planted and harvested acres for this year’s crop were revised down by 0.4 and 0.5 million acres, respectively, which pulled total production down to 12.433 billion bushels (bbu).  Analysts were looking for that number to be 12.479 bbu.  This all sounds pretty bullish, right?  Well, the reason the report was mildly bearish is that ending stocks were larger than pre-report expectations.  Ending stocks of corn were expected to be higher than last month’s projection as a result of the September 30 quarterly Grain Stocks report, which showed more corn in storage than expected.  Analysts were expecting ending stocks at 806 million bushels (mbu) compared to 672 last month.  Actual projections by USDA of ending stocks came in at 866 mbu.

The report was bearish for cotton in that USDA projected yield and production higher while total use was lower due to decreased export demand.  The result was a bump in U.S. ending stocks to 3.9 million bales from 3.4 in the September report.  Globally, the report is much worse.  Production estimates are higher for Australia, India, Brazil, Pakistan and Mali (as well as the U.S.), which more than overcame reductions to China’s production.  Projected demand was lowered as well since the lackluster global economic environment does not bode well for cotton.  World ending stocks were raised to 54.83 million bales from 51.90 last month.

There were not a tremendous amount of revisions to the report with respect to soybeans.  Harvested acreage and yield were both lowered (acreage at 73.7 million compared to 73.8 last month and yield at 41.5 bu/ac compared to 41.8) thus pushing U.S. production down to 3.060 bbu versus 3.085 last month and much lower than the 3.102 analyst had expected.  This was offset to a small degree by lower total use and ending stocks – now are projected at 160 mbu versus 165 last month and 183 from pre-report estimates.

Wheat plantings are beginning to wrap up across much of the lower U.S.  USDA projects wheat yield to be lower at 43.9 bu/ac versus 45.9 last month. This pushed production lower but the number was more than offset by decreased demand (largely reflected in last month’s stocks report).  The bigger story for wheat came further down in the report where global values are reported.  World ending stocks for wheat were raised by 7.8 million metric tons to 202.37 largely due to increased production across many heavy wheat-growing regions.

Rice production was cut due to lower yields in many of the rice growing states (AR, CA, MS and TX all were lower than last month’s projected yield the remaining states were unchanged).  If realized this will be the smallest crop since the 1998/99 marketing year.  Rice demand was also lowered to 218 million hundredweight from 220.  Still, the smaller crop is projected to draw down ending stocks to 36.4 million hundredweight compared to last month’s projection of 38.3.