by Chris Clayton, DTN Ag Policy Editor
Katie Micik, DTN Markets Editor
SHINTON (DTN) -- The U.S. corn stocks-to-use ration fell to 5.8%, the lowest carryout since 1995-96, as USDA cut total corn production to 10.779 billion bushels, a six-year low.
Despite the low corn projections, USDA actually buoyed the numbers by increasing corn ending stocks for the 2011-12 crop year to 1.021 billion bushels from 903 mb while trimming corn demand by 1.595 billion bushels.
USDA reduced corn feed use by 725 mb. Food, seed and industrial use fell by 470 mb, while ethanol use was cut 400 mb. USDA more than doubled its forecast for imports from 30 mb to 75 mb.
Corn prices should average $8.20, according to the World Agriculture Outlook Board's latest estimate. In July, the average price was estimated at $5.90.
On the soybean front, production came in slightly lower than trade estimates at 2.692 billion bushels. It trimmed domestic crush by 95 mb while lowering exports by 260 mb to 1.11 billion bushels.
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Crop Production report link: http://usda.mannlib.cornell.edu/…
World Agricultural Supply and Demand Estimates (WASDE) link: http://www.usda.gov/…
USDA dropped corn production to 10.77 billion bushels, the lowest production levels since 2006. Based on crop conditions on Aug. 1, USDA estimated yield at 123.4 bushels per acre, which is 23.8 bushels below 2011 and the lowest U.S. corn yield since the early days of the biotech production boom.
USDA's estimate falls slightly lower than the average market estimate which was pegged at 126.2 bushels per acre.
Simply put, USDA observations agree with the rest of the world that the summer drought has decimated yield for key crops such as corn and soybeans as much as expected. Rainfall through the hardest-hit areas of the country was less than half normal totals with some areas receiving little or no rain. "As a result, corn and soybean conditions fell to levels comparable to those observed at the height of the historic 1988 drought," USDA stated.
Key production states are projected to take big hits. Yields in Illinois are estimated to fall 41 bushels per acre to 116 bpa and a production hit of 485 million bushels overall. Iowa is projected to see a 31 bpa decline to 141 bpa with production estimated to fall 439 million bushels. Indiana yields are expected to fall 41 bpa and Ohio is projected to fall 32 bpa.
Eight of the major corn states report more than half their corn acreage is in poor or very poor condition.
USDA trimmed U.S. corn ending stocks for 2012-13 corn to 650 mb, just one bushel lower than the average trade estimate. That's 533 mb lower than the USDA's July estimate, reflecting lowered production and decreased demand.
For 2011-12, USDA increased corn ending stocks, which in turn become beginning stocks for the 2012-13 year, to 1.021 bb. That's 118 million bushels higher than its July estimate of 903 mb.
World ending stocks for corn dropped to 123.33 million metric tons from 134.09 mmt estimated in July. Lowered global production and reduced usage contributed to the reduction.
Production for soybeans is estimated at 2.69 billion bushels, down 12% from last year. USDA pegs the yield at 36.1 bpa, which is also slightly below the average trade estimate and 5.4 bushels below last year. If realized, the average yield will be the lowest since 2003.
States that took a bit hit in corn saw similar declines in estimated soybean yields. Iowa yield is estimated down 13 bpa, the biggest overall decline of major soybean-producing states. Indiana will fall 12 bpa; Nebraska down 10.5 bpa; and Illinois down 10 bpa.
The bright spot in the country for corn and soybeans is Minnesota. The Gopher State is estimated to hold its own with 155 bpa in corn and 38 bpa for soybeans, both roughly the same as last year's yields.
WASDE estimates old crop ending stocks will be 145 million bushels, down 25 million bushels from earlier estimates. Soybean supplies for 2012-13 will be down 12% to a nine-year low on lower production and those reduced beginning stocks. Soybean exports are expected to be reduced 260 million bushels for the 2012-13 crop, and domestic soybean crush will be reduced as well due to higher prices. New crop ending stocks are projected at 115 million bushels, down 15 million bushels from earlier estimates.
One of the few major crops seeing a bump in production, all wheat production is forecast at 2.27 billion bushels, up 2% from USDA's July estimate and 13% from last year.
The WASDE report boosts U.S. wheat supplies for 2012-13 by 54 million bushels due to higher production and an increase in imports. Ending U.S. stocks will be higher by 34 million bushels despite expected increased use in feed and residual use because of the tight supply situation for corn.
Global numbers show a projected 2.1 mmt decline in supplies due to lower overall foreign wheat production. Russia is expected to see a 6 mmt decline due to a July heat wave. Argentina, Turkey and Europe also are expected to see declines in production that will be partially offset by production increases in India, the Ukraine, Canada and Uzbekistan.
A big surprise in the August production report was just how far off the trade estimates are on sorghum. USDA pegged sorghum production at 247.6 million bushels, which is 14% higher than last year. Still, market observers expected even higher numbers with the average production call at 335 million bushels.
Despite higher production, sorghum yields are estimated at 48.6 bpa, which is 6 bpa below last year. Market analysts had pegged sorghum yields at nearly 16 bushels higher than USDA estimates.
"It has been a volatile session to say the least since the release of the August supply and demand and production numbers with contracts trading on both sides of unchanged," said DTN Analyst John Sanow. "Of the slew of numbers released, the only ones that matter are 5.8%, 4.2% and 28.6% representing the domestic stocks numbers for corn, beans and wheat.
For corn and beans this is bullish, as it is the second tightest and tightest on record respectively, for wheat bearish. However, the question Friday will be whether all three markets close lower, with the exception of maybe soybeans as the market may have already factored in these numbers. Longer-term, the fundamental outlook remains bullish and should continue to support all three markets."
The world numbers should be considered bullish for corn and beans, neutral for wheat, Sanow said. "Ending stocks and stocks-to-use fell for all three as expected, though most will question whether they are still overstated particularly in beans and wheat. The latter simply doesn't sync up with local estimates from the Black Sea Region and Europe while the former has record production for South America."
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Posted with DTN Permission by Haylie Shipp