Monday, October 11, 2010

2010 Crop Production and World Agricultural Supply-Demand Estimate

In the October 8 2010 Crop Production and World Agricultural Supply-Demand Estimate (WASDE) reports, the USDA made changes in its supply-demand projections that have strong positive impacts on U.S. and World feedgrain price prospects, as well as positive direct and cross-crop market effects on soybean and wheat price prospects.

Market Implications for U.S. Corn and Grain Sorghum: Projections for MY 2010-11 of U.S. corn ending stocks below 1 billion bushels (902 mb) and % stocks-to-use of 6.7% (nearing historic lows of 5% in MY 1995-96) provide strong supply-demand support U.S. corn and grain sorghum prices for the remainder of 2010 and into 2011. With improved U.S. cash corn price projections for MY 2010-11 in
the $4.60 to $5.40 /bu range, it is likely that price rationing will have some impact on feedgrain use.

MY 2010-11 appears to be a “short crop” marketing year for U.S. corn and other feedgrains. If a typical short crop corn price pattern emerges in MY 2010-11, then strong prices in late fall 2010 may be matched or exceeded in the spring 2011 due to uncertainty about U.S. feedgrain and oilseed acreage (i.e., “bidding for acres) and weather-driven crop production prospect concerns.

Market Implications for U.S. Wheat: World wheat ending stocks for MY 2010-11 are projected to decline to 175 mmt (26.3% S/U), down from 197 mmt (30.2% S/U) in MY 2009-10. However, MY 2010-11 ending stocks are still projected to be 50 mmt above MY 2007-08 when they declined to a 30 year record low of 124 mmt (˜ 20% S/U). Even though World wheat stocks in MY 2010-11 are not projected to be as tight as in MY 2007-08, wheat prices have been supported by the market impact of a) export limits from Black Sea countries, b) the possibility of production problems in some major wheat exporters, c) continued steady growth in World wheat usage, and d) the current availability of sizable U.S. wheat stocks to help meet World export demand. Unless World wheat production markedly expands to meet or surpass wheat usage in the next 1-2 years or longer, ending stocks will likely be relatively tight, supporting U.S. wheat prices at historically high levels.

Market Implications for U.S. Soybeans: Current USDA WASDE soybean market projections for MY 2010-11 World supplies, domestic demand, exports, and ending stocks appear likely to support historically high U.S. price levels (i.e., $10.00 to $11.50 /bu for MY 2010-11). However, any appreciable threat to World soybean supply and/or demand factors could be expected to spark extreme price volatility in soybean markets. In particular, world soybean markets will be vulnerable to soybean production problems in either the U.S. or South America, or to any weakness in world soybean export demand, particularly from China given its dominant role in world soybean and soybean product markets.

With strong prices forecast for both corn and soybeans for MY 2010-11, it is likely that a strong competition for U.S. crop acres will occur in the spring of 2011, with new crop NOV 2011 soybean and DEC 2011 corn futures reflecting market concerns about 2011 acreage and production prospects.

Source: Daniel O’Brien, Extension Agricultural Economist, Kansas State Research and Extension

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Artwork: Wheat Field with a Lark by Vincent van Gogh