September 2012 Supply and Demand Report Recap

I quickly want to introduce Dr. Brian Williams. Brian recently joined the Mississippi State Extension Service as a commodity marketing specialist. He will be taking over the corn, soybean and wheat duties and contributed to this post. Brian can be reached at williams@agecon.msstate.edu or (662) 325-2676.

A discussion of this report is below in podcast form and for iTunes users you can subscribe to our ag marketing podcast to easily access future material by clicking here.

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USDA released their monthly World Agricultural Supply and Demand Estimates report early this morning (Sep 12). The report is the second to reveal objective field data collected throughout the U.S.

Corn

Projected corn yields of 122.8 bushels/acre are 0.6 bushels lower than last month’s report but are higher than pre-report estimates of 120.6 bushels/acre. An earlier than normal harvest has resulted in nearly 1.2 billion bushels of new-crop corn available for use at the end of the 2011/2012 crop year and is resulting in higher projections for 2012/13 beginning stocks. Crop progress reports show that 11 percent of the U.S. corn crop had been harvested by September 1and 92 percent of the Mississippi corn crop had been harvested as of September 9. U.S. exports are projected to be 50 million bushels lower but are offset by a 75 million bushel increase in domestic feed and residual use. The report projects 2012/13 ending stocks up 83 million bushels over last month and a season average farm price of $7.20 to $8.60. Corn finished down $0.08/bu following the release of the report.

Cotton

Cotton production in the U.S. was reduced by 3.1% compared to last month’s projection, from 17.65 million bales (MB) in August versus 17.11 this month.  The reduction stemmed from a smaller harvested area.  Harvested acres are currently estimated at 10.44 million compared to an estimated 10.81 last month but 980,000 more than last year.  Abandonment of cotton acres is expected to be smaller than in 2011 when West Texas acres were under a very extreme drought, but compared to last month’s projected abandonment, September’s number is slightly larger. Currently, 84.5% of acres are expected to be harvested in in 2012 compared to 85.5% projected last month and 64.2% harvested in 2011.  The impact of the reduced number of acres was marginally offset by a 2 pound per acre increase in U.S. average yield versus last month, from 784 to 786.  Cotton use was adjusted to reflect impacts of a weakening global economy.  Exports account for 69.0% of projected 2012/13 U.S. production and 77.6% of current projected total use.  Therefore, the global economic environment is vitally important to cotton demand.  Forecasted exports were reduced 300,000 bales, from 12.1 MB last month to 11.8 in the current report.  Domestic mill use was unchanged from last month’s projection at 3.4 MB, which was in-line with 2011 domestic mill demand of 3.3 MB.

Speaking of the global marketplace, projected world ending stocks were increased by 1.85 MB largely due to an increase in carry-over from the 2011/12 marketing year – and largely stemming from carry-over in China.  China has, and will, continue to be the 800 pound gorilla in the market place that no one want to upset nor do they know what to do with them.  The preliminary signs of a struggling Chinese economy – slowing manufacturing among other things – could be the fiber that breaks the cotton market (my apologies for the weak pun).

On a positive note, rumors that a significant reduction in future acres due to the current low price for cotton compared to much higher prices for corn and soybeans – which have competed for acres in the U.S. south and in South America – could spark a rally.  As South America moves forward with their growing season more will be known in this regard.  Still, on the home front, cotton futures reacted negatively on the day primarily as a result of outside market pressures given that report was mildly bullish.

Soybeans

As with corn, soybean yield projections have been lowered from 36.1 to 35.3 bushels/acre. The yield projections are slightly lower than the pre-report expectations of 35.5 bushels/acre. A projected soybean production of 2,634 million bushels is down from last month’s estimate of 2,692 million bushels and is on par with the pre-report estimates. Lower soybean production is offset by a decrease in exports and domestic consumption, and ending stocks are unchanged at 115 million bushels. World soybean production is also down 2.33 million tons and projected 2012/2013 ending stocks are down 0.28 million tons. Today’s soybean market responded in a bullish fashion with November soybeans finishing up $0.44/bu at $17.45/bushel.

Rice

Rice production is currently projected at 196.3 million cwt, up 6.3 million from last month’s projection due to both an increase in expected harvested acres and yield.  Acres harvested were increased by 37,000 with Arkansas leading the charge of increased acres (up 35,000), while the remaining sates pretty much offset each in harvested acreage increases and decreases.  The national average yield is currently estimated at a record 7,334 pounds per acre, up 138 pounds per acre from theAugust report – with increases stemming mostly from Arkansas, Mississippi and Texas.

Domestic demand and U.S. exports were raised to 126.0 million cwt and 100.0 million cwt, respectively (up 2.0 and 8.0 million cwt). The jump in domestic use was largely due to the bump in domestic supplies relative to a decrease in other competing grains over the course of the past few months.  All rice ending stocks are currently projected at 30.9 million cwt, up 2.4 million from last month, but down 10.2 million from the previous marketing year.

Wheat

The 2012/13 U.S. wheat ending stocks remain unchanged from last month at 698 million bushels, but are lower than the pre-report expectation of 709 million bushels. Global production is projected to be 3.1 million tons lower at 658 million tons, predominately due to the ongoing heat and drought in Russia. Projected global wheat consumption is 2.6 million tons lower, resulting in a 0.5 million ton reduction in global ending stocks. The projected farm price for the 2012/13 wheat crop is reduced from $7.60-$9.00 per bushel to $7.50-$8.70.

Sep 2012 WASDE Recap