By Chris Clayton, DTN Ag Policy Editor and Katie Micik, DTN Markets Editor
WASHINGTON (DTN) -- Citing the "rapid decline in crop conditions" since early June, USDA's World Agricultural Outlook Board went beyond the pre-report expectations and lowered the projected corn yield 12% to a national average of 146 bushels per acre.
Outlook board officials said the 12% reduction in yield in the July report is the largest such decline by the forecast board in recent memory.
WASDE also dropped the soybean yield estimates to 40.5 bushels an acre, down 3.4 bushels an acre from last month's estimates.
"There is no other way to look at this report than bullish for all three grains," said DTN Analyst John Sanow.
With drought sweeping across the central Plains, Midwest and Mid-South, crops are stressed across almost all major growing areas. Monthly rainfall totals are less than half of normal across a broad area, centering on the heart of the Corn Belt. Concern about drought conditions has reached a point that USDA is planning to announce some measures on Wednesday to help stressed farmers.
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The outlook board lowered projected U.S. corn production for this summer's crop by 1.82 billion bushels to an estimated production of 12.97 billion bushels in the monthly World Agricultural Supply and Demand Estimates report, or WASDE.
Coupled with those lower yield and production numbers, the WASDE also dropped projected ending stocks for the 2012-2013 crop by slightly more than 700 million bushels to 1.18 billion. With projected farm prices for corn elevated 40 cents to $1.40 higher per bushel, WASDE lowered demand for livestock feed, ethanol production and exports in its new projections.
"Reduced supplies and higher prices are expected to sharply lower 2012/13 corn usage with the biggest reduction for feed and residual disappearance, projected down 650 mb," WASDE stated. Exports are projected down 300 mb "as tight supplies, higher prices and strong competition from South American exporters limit U.S. shipments." The report also estimates a 100 mb decline in corn use for ethanol as well.
In its projections on yield and production, USDA went beyond the trade estimates, which had averaged the corn yield at 154.1 bushels an acre.
Despite those figures, USDA also increased its 2011-12 ending stocks by 52 million bushels to 903 million bushels by doubling import estimates and cutting feed residual numbers.
The corn stocks-to-use ratio for 2012-13 dropped to 9.3%. Last month's stocks-to-use for corn was 13.7%, once again reflecting the shrinking crop prospects.
Globally, coarse grain supplies are lowered 47.6 million metric tons, mostly reflecting the 46.2 mmt projected decline in the U.S. corn crop.
Once again, the WASDE estimate of 40.5 bushels an acre was lower than the pre-report estimates, which had pegged the national average at 42.3 bushels per acre.
Soybean production is estimated at 3 billion bushels, down 155 million bushels as higher harvested area is offset by lower yield numbers, according to WASDE. Once again, limited rainfall since early April, coupled with excessive heat translates into sharply declining crop conditions.
With lower production, WASDE also increased the average farm price $1 a bushel for soybeans for the 2012-13 crop.
Soybean exports for the 2012-13 crop were also lowered 115 million bushels to 1.37 billion, highlighting lower overall soybean supplies.
Soybean ending stocks for 2012-13 are lowered 10 million bushels to a projected 130 million bushels. Stocks-to-use ratio for soybeans dropped to 4.2%, down a one-tenth of a percent from last month's figures.
Winter wheat production also is pegged down 1% to a 1.67 billion bushel forecast, but still estimated to be 12% higher than the 2011 crop. Yield is forecast at 47.7 bushels an acre.
"USDA surprised almost everyone by cutting yield in corn and soybeans more than expected to 146 bpa and 40.5 bpa respectively," Sanow said. "This resulted in ending stocks falling below the average estimates. However, the question now is: Was demand ratcheted down too far, with corn seeing a 1.055 bb reduction while soybeans saw a 150 mb decrease. The latter is questionable given the lack of exportable supplies from South America. Corn and beans should continue to trade sharply higher with traders focusing more on production than potential losses in demand. New-crop ending stocks for wheat fell more than expected, though the weakening carry in spreads over the past several weeks hinted this was possible.
"Global new-crop corn ending stocks were decreased by almost 22 mmt, lowering stocks to use to 14.9%, matching the tight situation seen in the old-crop marketing year, the tightest level since 1973-74. Wheat ending stocks for 2012-2013 dropped to 182.44 mmt, down from the June estimate of 185.76 mmt with ending stocks to use at 26.8%. Soybeans had a bullish number as well. Ending stocks to use is 21.2% for new-crop marketing year, slightly above 2011-2012's 20.7%, and this is counting on record production from South America. This report should be considered bullish for all the members of the grain complex."
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