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Corn stocks drop surprises

A 245-million-bushel decline in projected new crop corn ending stocks was a pleasant surprise for market bulls in USDA’s June 10 World Agricultural Supply and Demand Estimates.

Traders were expecting a 10 million- to 15 million-bushel drop. Corn futures traded almost 6 cents higher in early trading on the report.

According to Joe Victor, vice president, Allendale, Inc., the drop in ending stocks from the previous month’s estimate comes on the heels of higher ethanol use, combined with lower beginning stocks. On the other hand, soy oil for biodiesel “is still not working when you look at the profit margins. Cellulosic for ethanol is not working yet either.”

Speaking at a press briefing on the report at the Minneapolis Grain Exchange, Victor said that historically, USDA’s acreage estimate for soybeans declines from the end of March to the end of June by an average of 0.9 percent, and for corn, increases an average 2 percent. He believes this will hold true again. “I think there’ll be 90 million to 90.5 million acres of corn planted. No. 2, we are seeing fewer wheat acres going in and more corn and sorghum. It works well for ethanol and for feeding.”

More acres and timely planting should bode well for overall corn production, Victor says. “You have to respect the fact that we planted this crop early, and it’s going to remain a fairly high test weight crop as long as the weather remains conducive, and we’re going to see higher production going into the fall harvest.

“Can we push 170-173 bushels per acre? You bet we can. While I don’t see weather as much of a threat for corn, I do see soybeans at risk.”

Victor says he doesn’t believe that EPA will mandate an increase in the ethanol blend from 10 percent to 15 percent. “If we can go up to 11 percent or 12 percent, we can give farmers the notice to increase plantings for the 2011 planting. USDA tells us that going from 10 percent to 15 percent is not good for smaller engines or older engines.

Victor disputes USDA’s and China’s assertion that China’s domestic corn crop is doing well. “China is not a GMO country like the United States. They have had planting problems in the northeast, where it’s been too cold, and it’s been dry in the south where the livestock herds are. I think they are going to take between 1 million and 2 million tons of corn imports from the United States.

“I don’t see any problem with China also importing upwards of 2 million metric tons of distillers dried grains with solubles from the United States. You could see China overtake Mexico as the No. 1 importer of U.S. DDGS.

“But we need to get this economy healed in the United States. We have to see food demand increase. We’re not getting the job done in wheat. We did see wheat exports increase on old crop, but we’re still losing ground.”

Weekly export sales for corn and soybeans “are very good, better than anticipated,” Victor said. “The outside markets, the high crude oil market and the lower value dollar are a positive scenario for the grain markets.”


TAGS: Corn
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