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U.S.D.A. Reports: Clearer Picture For Production, Prices and Corn / Ethanol Considerations

I. U.S.D.A. Reports
II. Canadian Corn Case
III. Disaster Aid
I. U.S.D.A Reports

Yesterday (January 12), the U.S. Department of Agriculture released three key reports, which contained additional information on U.S. crop production and usage. The current supply and demand snapshot will have implications with respect to market prices, production allocation decisions, federal farm payment distributions and consumer prices.

Policy makers will examine the results of these recent reports closely as they set to work on the 2007 Farm Bill, particularly with the keen bipartisan political interest in renewable energy issues that currently permeates the executive branch, the new Congressional leadership and House and Senate Agriculture Committees.


N.A.S.S. Will Release Corn Planting Projections in March

In anticipation of the release of the reports, Joe Poncer stated in Friday morning’s Wall Street Journal that, “Chicago Board of Trade corn futures settled sharply higher, as large-scale position-squaring ahead of today’s Department of Agriculture production and stocks data pushed prices higher, sources said.

“Most-active March corn rose 16.25 cents to $3.765 a bushel. Corn yesterday rose as high as $3.8025 a bushel, up 20 cents, which is the exchange-imposed daily price limit.”

Mr. Poncer’s article also noted that, “The government is scheduled to release the final production and ending stocks data today, so end users sought to even up outstanding positions ahead of the report. The Agriculture Department is expected to slightly lower the U.S. corn crop size from its most recent estimate, to 10.706 billion bushels.”

The Department of Agriculture’s National Agricultural Statistics Service (N.A.S.S.) issued the first of the reports from yesterday, entitled, “Crop Production- 2006 Summary.”

According to the report, “Corn for grain production is estimated at 10.5 billion bushels, down 2 percent from the November forecast and 5 percent lower than 2005. The average U.S. grain yield is estimated at 149.1 bushels per acre, down 2.1 bushels from the November forecast but 1.1 bushels above 2005. The 2006 yield estimate is the second highest on record, behind 2004, while the production estimate is the third largest on record. Area harvested for grain, at 70.6 million acres, is down 6 percent from 2005.”

With respect to soybeans, N.A.S.S. indicated that, “Soybean production in 2006 totals 3.19 billion bushels, the largest U.S. soybean crop on record. This is down less than 1 percent from the November forecast but 4 percent above the 2005 production. The average yield per acre is estimated at 42.7 bushels, 0.3 bushel below both the November forecast and last year’s record high yield. Harvested area is up 5 percent from 2005, to a record high 74.6 million acres.”

Also yesterday, the World Agricultural Outlook Board released their “World Agricultural Supply and Demand Estimates” (W.A.S.D.E.) report, which included the N.A.S.S. production estimates. The W.A.S.D.E. estimates reflect the official U.S.D.A. crop supply and demand balance sheet estimates and included additional information on agricultural exports; crop feed usage, ending stock levels and expected market prices.

The W.A.S.D.E. report noted that, “Projected U.S. 2006/07 corn ending stocks are projected at 752 million bushels, down 183 million bushels from last month as lower production is only partly offset by reduced feed and residual use. Corn production is estimated 210 million bushels lower reflecting lower planted and harvested area and a 2.1-bushel-per-acre reduction in the average yield. Feed and residual use is projected 75 million bushels lower based on the smaller crop and higher prices. Corn food and industrial use is lowered 5 million bushels reflecting lower use by the sweetener industry during the September-November quarter. Exports are raised 50 million bushels based on the continued strength of export demand as demonstrated by shipments and export sales. The projected price range is raised 10 cents on each end of the range to $3.00 to $3.40 per bushel.”

In a look at oilseeds, the W.A.S.D.E. report stated that, “U.S. oilseed production for 2006/07 is estimated at 96.9 million tons, down 0.2 million tons from last month but up 1.4 million tons from last year. Lower soybean production is mostly offset by increases for sunflowerseed, canola, cottonseed, and peanuts. Soybean production is estimated at 3,188 million bushels, down 16 million bushels from last month based on lower yields. The soybean yield is estimated at 42.7 bushels per acre, below last year’s record of 43.0 bushels per acre. Soybean exports are reduced 25 million bushels to 1,120 million bushels reflecting weaker-than-expected shipments in November and December. Soybean crush is unchanged. However, soybean oil and meal exports are both raised this month, with offsetting reductions in domestic consumption. Soybean stocks are projected at a record 575 million bushels, up 10 million bushels from last month. The U.S. season-average soybean price range for 2006/07 is narrowed to $5.75 to $6.45 per bushel. Soybean oil prices are forecast at 26.5 to 28.5 cents per pound compared with 26 to 29 cents last month. Soybean meal prices are projected at $170 to $185 per short ton compared with $165 to $190 last month.”

And in a forward-looking report at projected wheat planting levels (“Winter Wheat Seedings”), an important barometer that policy and energy analysts will focus on in order to better determine planting allocation decisions and potential production levels for the upcoming crop year, N.A.S.S., indicated that, “Winter wheat seeded area for 2007 is expected to total 44.1 million acres, up 9 percent from 2006. Approximate class acreage breakdowns are: Hard Red Winter, 31.9 million; Soft Red Winter, 8.33 million; and White Winter, 3.91 million.”

For an excellent summary and synthesis of what the updated U.S.D.A. estimates mean for agricultural markets in the year ahead, go to this audio summary (MP3) which was posted yesterday at the W.I.L.L. AM 580 Radio webpage (Champaign, IL). Todd Gleason of the University of Illinois Extension Service interviewed Professor Darrel Good, an Agricultural Economist and marketing expert at the University of Illinois, and they discussed some of the key issues raised by the results of the reports.

Joe Poncer followed up his article in Friday’s paper, and reported in today’s Wall Street Journal that, “Chicago Board of Trade corn futures soared Friday after the release of several Agriculture Department reports noting lower-than-expected 2006 production and inventory data.

“Most-active March corn jumped 20 cents to $3.965 a bushel, its daily exchange-imposed price limit. The pool of unfilled orders for the first four contract months was seen at 60,000 contracts.

“CBOT wheat, soy complex, rice and oat futures rallied sharply in solidarity with corn. Chicago Mercantile Exchange futures prices for feeder cattle, which eat corn during their last stages of development, fell to their exchange-imposed daily down limit of three cents a pound to 94.57 for the nearby January contract. The exchanges are closed Monday for the Martin Luther King Jr. holiday.

“The Agriculture Department reported that 2006 corn production was 10.535 billion bushels, 210 million below its previous estimate and well below the level anticipated by analysts.

“‘The report was bullish beyond anybody’s wildest dreams,’ said Joe Bedore, floor manager for FCStone.”

Mr. Poncer added that, “Surging domestic demand from the rapidly expanding ethanol industry has also been a major factor, with prices firm during the fall months. That is unusual, as prices are usually down during harvest, as a result of fresh supplies.”

The Associated Press also provided this summary of market action today, “Ethanol plants and foreign buyers are gobbling up the nation’s corn supplies, pushing prices as high as $3.40 a bushel, the U.S. Department of Agriculture said Friday.

“Farmers haven’t seen prices this high – a range of $3 to $3.40 a bushel, according to the new crop forecast – for more than a decade. That’s up 10 cents from December.

“Robust prices have made corn more expensive as a feed for livestock.

“Bloomberg News reported Friday that corn futures prices, which have surged 86 percent in the past year, rose to a 10-year high Friday on news of the USDA estimates.

“Analysts said that the futures rally may encourage farmers to plant more this year at the expense of less-profitable crops, boosting prices for wheat, soybeans and cotton and sales for fertilizer manufacturers.

“Higher costs for feed grain may erode the profits for meat producers such as Tyson Foods Inc.”

Today’s Des Moines Register added that, “High prices have forced some producers to switch to hay or other feed, but the drop-off in feed use was more than offset for corn farmers by growing demand from foreign markets, according to the crop report.

“Strong demand is eating into corn supplies, which are expected to drop from nearly 2 billion bushels to 752 million bushels.

“Eventually, sustained high corn prices would probably lead to higher grocery bills, but so far there has been no boost in what consumers pay for beef or pork.”

Brownfield’s Peter Shinn noted yesterday that, “And Alan Brugler, President of Brugler Marketing and Management in Omaha, Nebraska, said the ‘squeaky tight’ domestic corn ending stocks, when combined with the expected demand for corn from ethanol, exports and livestock, means the market must more aggressively buy corn acres.

“‘By knocking that carryout down that far, you put a real squeeze on ending stocks for next year,’ Brugler explained. ‘You basically require 87 or 88 million acres of plantings – you basically require 153 to 155 bushels per acre yield – or you run out of corn,’ he said. ‘And that’s just not a very safe to do, so the market’s sending a signal to plant more acreage.’

“That signal to plant more corn acres, Brugler said, is the key factor that drove Friday’s rally in futures of all major U.S. row crops, despite some USDA figures that might otherwise be perceived as bearish. For example, soybean production of 3.19 billion bushels, though smaller than USDA projected in November, is still the largest U.S. harvest on record. USDA also reported robust global soybean supplies as well.

“The situation is similar for wheat. USDA reported a 9% increase in all winter wheat seedings for the 2007 crop and said wheat production is expanding globally. But Brugler pointed out if millions more corn acres must be planted in 2007, they must come at the expense of other crops, reducing supplies of those crops for next year.” (For related audio from Brownfield on this issue, just click here (MP3)).

II. Canadian Corn Case

Interestingly, as the market price of corn sky rockets and the likelihood of federal loan deficiency payments and countercyclical payments for corn appears even less likely, Canada picked this week to request consultations with the United States at the World Trade Organization (WTO) on subsidies provided to U.S. corn growers, as well as on the total level of U.S. trade-distorting agricultural support.

As Philip Brasher reported in earlier this week in the Des Moines Register, “Canada’s complaint is similar to a successful complaint that Brazil brought against U.S. cotton subsidies. 



“However, the Canadian International Trade Tribunal ruled last spring that the country’s corn growers had not been harmed by imports of subsidized U.S. grain. The tribunal is the equivalent of the U.S. International Trade Commission. Canada relies heavily on U.S. grain imports for livestock feed.

“Gretchen Hamel, a spokeswoman for the White House trade office, defended U.S. subsidies as fair and noted that corn prices have risen sharply recently, well above levels that trigger subsidies. 



“‘Given the dramatic improvement in the market over the past year, we’re surprised that Canada believes that our corn programs are now causing harm in breach of WTO rules,’ she said.

“Ron Litterer, a Greene, Ia., farmer who is first vice president of the corn growers’ group, said it was too soon to tell what impact the Canadian case would have on the congressional debate.”

Steven Chase and Barrie McKenna reported in Tuesday’s Globe and Mail that, “‘The United States has been providing subsidies to its agricultural producers that create unfair market advantages,’ said International Trade Minister David Emerson, who last fall signaled Ottawa will no longer play a ‘Boy Scout’ in global commerce.

“The move is also a bid to forestall expected efforts by the protectionist, Democrat-controlled U.S. Congress to enrich Washington’s handouts to U.S. farmers as it reviews the Farm Bill this year.”

The article added that, “Trade lawyer Lawrence Herman called yesterday’s challenge a major development in Canada-U.S. trade relations because it could lead to one of the biggest cases yet for Ottawa at the WTO.

“Former Liberal governments bemoaned U.S. farm subsidies publicly, but this is the first time Ottawa has challenged them before the WTO, which functions as a global trade referee.

“‘This is more than just a shot across the bow. It’s the deliberate engagement by Canada in a full-scale naval battle,’ said Mr. Herman, with Cassels Brock & Blackwell LLP in Toronto.

“Lawyer Greg Somers, with Ogilvy Renault LLP, said Canada’s challenge is significant because the entire world watches U.S. farm aid.

“‘It’s been the elephant in the room for years,’ he said, adding that it’s possible other countries may join the challenge.

Urban C. Lehner, Editor-in-Chief of DTN noted on Friday (link requires subscription) that, “Canada’s trade suit against U.S. corn subsidies could change the course of the 2012 farm-bill debate.

“Whether it will influence the 2007 farm-bill debate is more problematic.

“Influencing this year’s debate is clearly what the Canadians had in mind in bringing their World Trade Organization case when they did. That’s worth highlighting, as some Americans have professed astonishment that anyone would complain of U.S. corn subsidies in a year when none are likely to be paid, market prices for corn being what they are.

“It’s also worth noting that big corn subsidies were paid in previous years, which the Canadians can argue caused their corn farmers serious prejudice. More pertinently, if our current farm bill is extended this year, big subsidies could be paid again in the future. Just imagine what would happen to corn prices should crude oil nosedive below $35 a barrel.”

III. Disaster Aid

A news release issued yesterday by the National Association of Wheat Growers stated that, “A bipartisan group of Senators is supporting a bill introduced Monday that would provide permanent agriculture disaster assistance.

“Help would be available for producers in federally-declared disaster counties and contiguous counties who lose more than 35 percent of their crop due to weather conditions. Those producers would be eligible for a payment of 65 percent of the crop price.

“The bill would also require producers to purchase crop insurance in order to be eligible. If a producer’s crop is a noninsurable commodity, that producer would have to participate in the Noninsured Crop Disaster Assistance Program to be eligible.

“The bill was introduced by Sen. Byron Dorgan (D-N.D.), Sen. Kent Conrad (D-N.D.), Sen. John Thune (R-S.D.) and Sen. Mary Landrieu (D-La.). Other co-sponsors as of press-time include Sen. Michael Enzi (R-Wyo.), Sen. Amy Klobuchar (D-Minn.) and Sen. Jon Tester (D-Mont.).”

-Keith Good