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USDA Production Estimates

As news articles and reports regarding food prices, ethanol use and grain stock supplies appear with greater frequency, the U.S. Department of Agriculture released two important reports on Friday that shed additional light on supply and demand estimates for important agricultural commodities.

In addition, the USDA numbers provide a firm foundation for assessing some aspects of the agricultural economy as policy makers consider changes to U.S. farm policy.

On Friday, the USDA’s National Agricultural Statistics Service (NASS) released their October Crop Production report, which indicated that, “Corn production is forecast at 13.3 billion bushels, up slightly from last month and 26 percent above 2006. Based on conditions as of October 1, yields are expected to average 154.7 bushels per acre, down 1.1 bushels from September but 5.6 bushels above last year. If realized, this would be the second highest yield on record, behind the 160.4 bushel yield in 2004. Production would be the largest on record as growers expect to harvest the most corn acres for grain since 1933.”

(Illinois Corn Harvest, FarmPolicy Photo).

With respect to soybeans, NASS estimated that, “Soybean production is forecast at 2.60 billion bushels, down less than 1 percent from the September forecast and down 19 percent from last year’s record high. Based on October 1 conditions, yields are expected to average 41.4 bushels per acre, unchanged from last month but down 1.3 bushels from last year.”

For historic context with respect to corn production, see this graph; for soybean production, just click here.

Also Friday, the World Agricultural Outlook Board (WAOB) released the monthly World Agricultural Supply and Demand Estimates (WASDE) report, which included additional use and current supply estimates for key program crops.

The WASDE report stated that, “Projected U.S. ending stocks of corn for 2007/08 are raised 322 million bushels this month on larger supplies and lower domestic consumption which more than offset an increase in projected exports.”

For a broader look at past and potential future corn stock levels, see this USDA graph.

Drawing on the NASS production report, the WASDE report added that, “Production is forecast at 13.318 billion bushels, up just 10 million as an increase in area is nearly offset by lower forecast yields. Total corn supplies are projected at a record 14.6 billion bushels based on slightly higher production and increased carryin as reported in the September Grain Stocks report.” (Recall that the September Grain Stocks report stated that, “Corn stocks in all positions on September 1, 2007 totaled 1.30 billion bushels.”)

Turning to corn use, Friday’s WASDE report noted that, “Feed and residual use is lowered 150 million bushels based on the slower rate of domestic use implied by September 1 stocks. Corn use for ethanol in 2007/08 is lowered 100 million bushels reflecting lower indicated plant capacity utilization and lower returns for ethanol producers due to recent declines in ethanol prices and continued strength in corn prices. Exports are projected 100 million bushels higher on tighter foreign grain supplies and strong export sales. At the projected 2.35 billion bushels, 2007/08 exports would be the highest in 18 years.”

Applying these updated supply and demand estimates, the report stated that, “The season-average farm price is projected at $2.90 to $3.50 per bushel, up 10 cents on both ends of the range reflecting continued strong cash prices supported by strong export demand and higher soybean and wheat prices.”

For reference to historic price levels of corn, see this graph.

After a more detailed look at oilseed supply and demand statistics, the WASDE report stated that, “The U.S. season-average soybean price range for 2007/08 is projected at $7.85 to $8.85, up 50 cents on both ends of the range as prices during harvest have been unseasonably strong. Product prices are also raised this month. The soybean meal price is projected at $220 to $250 per short ton, up $15 on both ends of the range. The soybean oil price range is projected at 34.5 to 38.5 cents per pound, up 1.5 cents on both ends of the range.”

For reference to historic price levels of soybeans, see this graph.

And on wheat, Friday’s report stated that, “U.S. wheat ending stocks for 2007/08 are projected at 307 million bushels, down 55 million bushels from last month, reflecting lower production and higher use as an increase in projected exports more than offsets lower projected feed and residual use. If realized, this year’s ending stocks would be the lowest since 1948/49. Production is lowered 47 million bushels this month based on the latest production estimate from the Small Grains Summary report.” (Recall that the Small Grains Annual Summary report stated that, “All wheat production totals 2.07 billion bushels in 2007, down 2 percent from the August forecast but up 14 percent from 2006. Grain area is 51.0 million acres, up 9 percent from last year. The U.S. yield is 40.5 bushels per acre, down 0.1 bushel from the last forecast but up 1.8 bushels from last year.”)

Regarding wheat use, the WASDE report stated that, “Feed and residual use is projected 45 million bushels lower this month as strong export demand and higher prices are expected to limit wheat feeding during the remainder of the 2007/08 marketing year. Exports are raised 50 million bushels reflecting tighter world supplies and the strong pace of U.S. shipments and sales to date. The season-average farm price is projected at $5.80 to $6.40 per bushel, up 30 cents on each end of the range from last month and well above the record of $4.55 per bushel in 1995/96.”

For reference to historic price levels of wheat, see this graph.

In a broader look at wheat, the WASDE report pointed out that, “Global wheat production for 2007/08 is projected down 5.8 million tons this month reflecting lower output in Australia, EU-27, and the United States, which more than offsets increases in Argentina, Canada, and FSU-12. Production for Australia is lowered 7.5 million tons as drought and heat that began in August continued through early October leaving crops, particularly in eastern Australia, with little moisture through the critical reproductive stages. Production is lowered 1.1 million tons in EU-27 based on updated government estimates. Production is raised 0.5 million tons for Argentina as timely September rains boosted soil moisture and higher prices encourage more fertilizer usage. Production in Canada is raised 0.3 million tons based on the latest official estimates. FSU-12 production is raised 3.3 million tons mostly reflecting better-than-expected spring wheat yields as good growing season moisture and extended good weather for harvest have boosted production prospects for Kazakhstan and Russia.”

For additional analysis of the wheat market, see this Bloomberg News podcast (MP3) from October 9: “‘Flaskerud Sees Need for More Wheat Crops to Meet Demand.’ –George Flaskerud, a professor at North Dakota State University, spoke yesterday with Bloomberg’s Tom Keene from Fargo, North Dakota, about wheat prices and production.”

The audio interview report lasts about 17 minutes.

Meanwhile, Reuters writer Nigel Hunt reported on Friday that, “Wheat is likely to be grown on much of the land returning to agricultural use this year after record prices for the commodity led the European Union to ditch rules keeping land out of production. ‘I think the main focus will certainly be on using set-aside for wheat production because of the remarkably high wheat prices we have seen in past months,’ one German analyst said.

“EU agriculture ministers agreed on Sept. 26 to end a rule that farmers leave 10 percent of their land fallow, known as set-aside, in a bid to increase grain supply after shrinking stocks sparked a sharp rise in wheat prices.

“The rule was introduced in early 1990s as the EU sought to reduce its grain mountains.

“But rising world demand and weather-related crop problems in several key producing countries have seen the stockpiles evaporate and global wheat inventories are now at a 26-year low.”

And Philip Brasher, writing in Saturday’s Des Moines Register, provided an excellent narrative recap of some of the more important numbers contained in Friday’s USDA reports.

Mr. Brasher stated that, “The slowdown in the ethanol industry is taking some pressure off the nation’s corn supplies.

“For the second straight month, the U.S. Agriculture Department on Friday trimmed by 100 million bushels its estimate of how much of this year’s corn harvest would be converted into fuel ethanol. That’s the amount of grain that would be used in a year by three to six typical distilleries in Iowa.

“Several ethanol projects have been put off in recent weeks because of falling ethanol prices. A small plant in North Dakota has announced plans to temporarily close.”

Mr. Brasher added that, “But what corn isn’t being used by ethanol plants will fill demand for grain by foreign buyers. The USDA raised its estimate of corn exports by 100 million bushels.”

The Register article also pointed out that, “Export sales commitments are running well ahead of the pace on last year’s harvest, said Joe Victor of Allendale Inc., a commodity research firm in McHenry, Ill.

“With the world population growing, ‘we’re putting more stress on grain and oilseeds to perform for feed and fuel and human food consumption,’ he said.

“The USDA estimated farmers nationwide will harvest 13.3 billion bushels of corn this year, slightly more than the department’s forecast last month. Of that production, 3.2 billion bushels is expected to be used for ethanol. While down from the August forecast, it’s still double the amount of corn that went into ethanol just two years ago as the biofuel industry began its boom.”

And with respect to oil prices, another variable that has an important impact on food prices, Matt Chambers, in an article posted at The Wall Street Journal Online, reported that, “Crude-oil futures settled at an exchange record Friday after gaining for the fourth straight session on concerns that there will be a big shortfall in supplies going into the Northern Hemisphere this winter.

“The front-month November light, sweet crude contract on the New York Mercantile Exchange rose 61 cents, or 0.7%, to $83.69 a barrel. Prices hit an intraday high of $84.05 a barrel, also an exchange record.”

Keith Good