CME: WASDE Report Holds Little Relief for Producers12 October 2012
US - The latest USDA WASDE report offered little relief for livestock and poultry producers, write Steve Meyer and Len Steiner.
Key corn supply numbers
came in below pre-report estimates. More importantly, the report
dispelled an expectation that was building in recent weeks that
yields would be higher than earlier projected. Some analysts were
pegging the yield as high as 127 bushels per acre, about 5 bushels
higher than what USDA reported. The October yield was pegged at
122 bu/acre, which in itself implied a 70 million bushel reduction in
output. However, USDA increased the number of planted acres
and harvested acres (per FSA certified data), leaving output down
just 21 million bushels from the September forecast. One of the
biggest changes in the report was one which was already known.
Carryover stocks are down 193 million bushels, reflecting the latest
data from the quarterly grain stocks survey. USDA offset some of
the reduction in available supply by lowering its estimate of US
corn exports by 100 million bushels. Currently USDA projects US
corn exports for 2012/13 at 1.150 billion bushels, 25.5% smaller
than a year ago.
USDA did not change its estimated ethanol and feed demand from the September report. Feed use is still expected to be down 9% from the previous year while ethanol use is expected to be down 10%. It remains to be seen if current corn prices are enough to force these kinds of cutbacks in livestock and energy demand for corn. At this point, USDA projects reductions in the production of all three main meat proteins. Beef production for 2013 is currently pegged at 24.726 billion pounds, 3.7% lower than a year ago. US beef production for the period Q4 2012 - Q3 2013 (corresponding to the corn marketing year) is projected to be down 3.3% from the previous year. Pork production for all of 2013 is projected at 23.017 billion pounds. This is about 95 million pounds larger than what USDA projected in September but down 1.3% from a year ago. The upward revision came despite reports that producers may be aggressively reducing their breeding herds.
Indeed, for the period Q4 2012—Q3 2013, USDA pork production is down just 0.2% from the previous year. Broiler production is expected to decline further, down 0.8% from a year ago following a 1.3% reduction in 2012. Still, looking at output projections for Q4 2012 - Q3 2013 USDA expects broiler production to decline 1.3%. Those that hold a more bullish view of the corn market point to these kinds of reductions in meat production and conclude that feed demand may not decline as much as what the USDA balance sheet indicates. And with current corn ending stocks at minimum pipeline levels, something will have to give. Ethanol could decline further but that will likely require lower crude oil prices. There is talk of higher corn imports, which could end up hitting 100 million bushels but still too small to make a dent. In the end, livestock producers could be squeezed further in order to force bigger production cutbacks.
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