MCHENRY, Ill. – An increase in corn for ethanol was one of
the few surprises in the latest world agricultural supply and demand estimates
released Dec. 10.
“This December report is really just a stepping-stone report
while we wait for the big update in January,” said Rich Nelson, Allendale chief
strategist. “Overall, this December report is a yawner as it normally is. The
trade will be very interested in the January numbers, which have had some very
big moves in the past few years.”
Corn, soybean and wheat production estimates remained the
same as the November estimates, but there were differences at the bottom of the
balance sheet. “For corn, we did see some changes on the demand side. Some were
expected, and some were a little bit of a surprise,” Nelson said.
“As far as expectations, we did see a 50 million bushel
increase for exports, and that did fit with the strong pace of recent sales, so
we can’t argue at all with the 50 million increase for exports.”
He said the surprise in the report was the 50 million bushel
increase in the corn for ethanol category. While the recent ethanol production
pace has been strong, at 9 percent over last year, most analysts thought the
next move would be downward.
The U.S. Environmental Protection Agency has proposed to
lower the Renewable Fuel Standard for 2014, and a public comment period is under
“Typically, USDA will not make a change in their numbers
here based on their own personal projections. They wait until after the comment
period is over before making a change,” Nelson said.
“However, the actual increase in ethanol was a little bit of
a surprise here. At best, you’re looking at steady and some could say even lower
ethanol production. There was also a minor (five million bushel increase) change
in corn imports was seen, as well.”
Corn ending stocks were reduced 1.887 billion bushels last
month to 1.792 billion bushels in the most recent report.
“It does seem like it’s a bullish issue, but keep in mind
this number from 1.887 down to 1.792 are tremendously large stocks, over double
last year’s level,” Nelson said.
“The trade does have very clear expectation that we’ll see
an increase for corn production in the January report, and you could also
perhaps see that lowering of ethanol again, so the market is not going to trade
this 1.8 billion ending stock number. They are actually personally trading at a
1.9 billion bushel stock level.
“If the trade believed corn stocks would actually be 1.8
billion bushels, then futures are fairly priced at $4.20. We believe they will
continue to trade with the assumption of 1.9 billion though, which would imply
World corn ending stocks were lowered from 164.33 metric
tons to 162.46 metric tons.
“So overall we’re still left with a very burdensome supply
issue here as far as corn stocks,” the strategist said.
“This is not as large as it was 20 years ago by comparison
when looking at stocks-to-use numbers. But certainly compared to the last five
years, these are quite different numbers than the tight numbers we’ve become
used to here.”
Soybean production estimates were unchanged, and USDA
increased exports by 25 million bushels.
“That fits in perfect with the very strong pace that we’ve
seen here as far as actual sales so far. In fact, I could even argue we should
see an increase maybe on the January report,” Nelson said.
As the trade expected, soybean crush was increased by five
million bushels, soybean imports were raised by 10 million bushels and ending
stocks were reduced from 170 million bushels last month to 150 million this
“As far as the world side, there was no change for Brazilian
soybean production. That was a little bit of a surprise,” the analyst
“We’ve seen in the last week and one-half, soybean
production numbers from about 90 (million) to about 90.7 million tons, but USDA
kept Brazil’s unchanged at 88 million tons. Argentina production was raised by
one million ton, not much of a surprise.
“As a whole, this move down to 150 million bushels (ending
stocks) was expected, but in terms of prices, we’re still keeping our $12.50
downside target intact for these futures.
“We have no problem at all with this market currently
trading at about $13 per bushel because this is a U.S.-based market.
“However, as the South American crop develops and perhaps as
we get to the January timeframe, maybe February, we could argue that South
America will retake the trade’s focus and prices could move back down to our
Wheat demand and production estimates also were unchanged,
and imports reduced U.S. ending stocks by 10 million bushels to 565
The USDA increased Australia’s wheat crop production by one
million tons and increased Canada’s by four million.
“No changes were made to the one area the trade was very
focused on, which was Argentina. USDA left their numbers unchanged at 11 million
tons,” Nelson said.
“Keep in mind the Argentine government in just the past few
days put their number at 8.5 million tons, so there’s quite a difference with
regard to the Argentine wheat situation, which the USDA will have to address in
“We’re looking at $6.50 targets on the wheat, which this
market currently is at, and perhaps if corn goes lower we’ll see very slight
pressure (for wheat) in the coming days.”