The August Crop Production report and World Agricultural Supply and Demand Estimates from the U.S. Department of Agriculture were all about rationing ever-tightening stocks.
With July officially the hottest month on record for the contiguous U.S., it was little surprise that USDA tightened its estimates of 2012 production – nonetheless, traders were surprised by the magnitude of the expected reductions.
Starting with corn, USDA pegged this crop at 123.4 bushels per acre, a roughly 15.5% drop from the July estimate (more than 22 bushels per acre). With this estimate, corn is now projected to hit the lowest national average yield since 1995, though total production at 10.778 billion bushels is only the lowest since 2006 as producers will harvest far more acres in 2012 than they did 17 years ago.
USDA did trim harvested acreage by 1.5 million from the previous forecast due to the persistent and widespread drought. Accordingly, prices will continue to move higher in the domestic market, and imports are expected to increase as strong U.S. prices lead buyers to look at more competitive global supplies.
Globally, the World Agricultural Outlook Board pegged old crop ending stocks at 135.97 million metric tons, well above the high end of pre-report trade guesses, suggesting that perhaps prices have rationed old crop demand.
New crop, on the other hand, has work yet to do. USDA pegged U.S. corn ending stocks below the average trade guess at 650 million bushels, and global ending stocks were fairly close to the trade’s estimate.
Because the tighter supplies have driven higher prices for corn this season, USDA acknowledged ending stocks for 2011/12 are projected 118 million bushels higher with lower expected exports, reduced corn use for ethanol, and a small increase in imports.
Likewise, the large reduction in U.S. corn supplies and the sharply higher price outlook are expected to further reduce 2012/13 corn usage, according to the report
“Total use is projected 1.5 billion bushels lower and at 11.2 billion would be a 6-year low,” WAOB noted. “The biggest reduction again this month is for feed and residual disappearance, projected down 725 million bushels. Food, seed, and industrial use is also projected lower, down 470 million bushels, mostly reflecting a 400-million-bushel reduction in corn used to produce ethanol.”
New crop ending stocks, at 650 million bushels, are projected to be at their tightest level since 1995.
Relative to soybeans, USDA trimmed production below pre-report trade estimates at 2.692 billion bushels, reflecting an average yield of 36.1 bushels per acre, roughly an 11% drop from the July estimate of 40.5. USDA also trimmed harvested acreage by 700,000 from the previous estimate.
Soybean ending stocks for 2012/2013, at 115 million bushels, were slightly above the average trade guess but still a 9-year low. USDA tightened old-crop stocks, however, below what the trade had expected, reflecting stronger crush and export demand.
As perhaps anticipated, soybean and product prices were all raised to record levels with the August report.
The National Oceanic and Atmospheric Administration reported that July marked the hottest month on record for the contiguous 48 states, with drought covering nearly 63% of the continental landmass. The previous warmest July? The infamous Dust Bowl-era drought of 1936.
Putting it into a broader perspective, July marked a record-warm first seven months of 2012, and the hottest 12-month period the U.S. has faced since record keeping began in 1895.
Furthermore, May-July was the second warmest and 12th driest three-month period in history. With 63.9% of the country experiencing at least moderate drought as of the July 24 National Drought Monitor, the drought of 2012 is officially the most wide-spread in the 13-year history of the Monitor.
NOAA noted that for the Corn Belt, 2012 saw the eighth-hottest July, third-driest June-July, and sixth driest April-July in recorded history. By the Palmer Drought Index, 2012 marks the most extensive drought since 1956.
Editor's Note: To listen to my conversation with Farm Futures analyst Arlan Suderman about the implications of the August WASDE, read more on this story at Feedstuffs.com.