Grain Supply and Demand
USGC Analysis of USDA Planting and Stocks Reports
On March 30, 2012, the U.S. Department of Agriculture published two important reports: Prospective Plantings and Grain Stocks. The implications of these two reports are as follows:
1. Lower ending stocks for corn in the current (2011/12) marketing year.
2. Larger supplies of corn in 2012/13
3. Lower supplies of soybeans in 2012/13
The 2012 Prospective Plantings report projects that U.S. producers will plant 95.9 million acres (38.81 million hectares) of corn in 2012 – the highest corn planted area since 1937, up 3.9 million acres (1.6 m ha) from 2011 and slightly above the area planted in 2007 (up 2.4 m acres or 0.95 m ha).
This report surprised many market participants who had projected a lower number. Corn planting intentions increased 4 percent from a year ago and 9 percent from 2010. In addition, sorghum planting intentions increased 9 percent to 5.950 million acres and barley planting intentions increased 30 percent to 3.333 million acres.
Despite the large corn acreage projection, futures prices rose for corn, wheat and soybeans. USDA's quarterly Grain Stocks report surprised the market with a smaller-than-expected number of 6.01 billion bushels of corn on hand March 1, 2012 which was below the average trade estimate. That corn stocks number implied that the December 2011 through February 2012 corn usage was 3.64 billion bushels, well above the level of use for that same period of time the previous year. In addition, lower than expected acreage and stocks estimates for soybeans and wheat drove prices for those commodities higher.
IMPLICATIONS FOR CORN
1. The estimate of corn prospective plantings is a very big jump, and with expectations of trend yield (160.3 bu/acre = 10.07 mt/ha), we expect a record corn harvest in the neighborhood of 14.14 bbu (359.2 mmt). With this level of production the United States will have an abundant supply of corn for domestic feed, food and fuel use, as well as for exports to meet the demands of global consumers.
2. Planting intentions are only a preliminary indicator of the potential US corn crop. Actual planted area will be affected by weather conditions during planting season, and corn yields will be affected by weather conditions during critical periods of the growing season. On June 29, 2012 USDA will publish its Acreage report with the next estimate of planted acres. Beginning in May the monthly World Agricultural Supply & Demand Estimates (WASDE) report will update USDA's projections for 2012 crop production.
3. The large increase in corn planting intentions in 2012 is driven by the strong price of corn relative to other commodities. Those strong prices are driven by global demand for meat, milk and eggs by established and emerging middle class consumers. The strongest growth of that demand comes from developing markets – China, Southeast Asia, Latin America and the Middle East. While rapid growth of corn-based ethanol production in the United States was a feature of demand growth over the past 8 years, that demand has leveled off, and global feed demand once again is the major driver of coarse grain prices.
4. The United States has limited domestic demand growth potential in feed, food and fuel industries. The most important source of domestic US feed demand growth is for production of meat for export. Ethanol production from corn is stable, and likely to grow only nominally in coming years. So corn exports will become far more important to US farmers.
5. The U.S. grain marketing system has changed significantly in the past decade – with more on-farm storage and greater farmer marketing expertise. As a result, U.S. corn producers and marketers are well equipped to store and market the 2012 bumper crop throughout the new marketing year. Both buyers and sellers have the capability to employ careful, systematic marketing strategies.
6. China remains one of the great 'wild cards' in world corn markets. Although China is the second largest corn producer in the world, and harvested a record crop in 2011, China's domestic corn production cannot keep pace with the rapidly expanding demand of its growing middle class. China continues to expand its production of pork, poultry and milk. And China's sustained imports of soybeans foretell the potential for significant corn imports as well. Although the government of China maintains a goal to sustain 95% self-sufficiency in grains, China is poised to import at least 4 mmt in 2011/12. Import demand according to USDA could climb to 15 mmt by 2020.
7. Looking forward – even beyond 2012 – corn exports will be increasingly important to US corn producers, and corn imports will be increasingly important to most developing economies around the world. Food security for many developing countries will be built on secure trading relationships to ensure unrestricted flow of food and commodities. Industry and government leaders with a clear vision of the future must cooperate to develop policies that enhance trade, build confidence among trading partners and remove regulatory friction.
Prospective Plantings Report: Background
The Prospective Plantings report from USDA, published each year at the end of March, is the first official estimate of the planting intentions for the upcoming growing season. The estimate is based on surveys of more than 84,500 U.S. agricultural producers during the first two weeks of March.
Over the past 20 years the Prospective Plantings estimates for corn have deviated from final estimates by an average of 1.15 million acres. The prospective planting estimates have been below the final estimates 8 times and above 12 times.