US market outlook

FALLOUT FROM THE DROUGHT

as us farmers combined the last fields of soybeans, many agreed the results from 2012’s exceptional drought could have been a lot worse.

The November United States Department of Agriculture (USDA) crop report forecasted a corn crop of 10.73 billion bushels, down 13 percent from 2011, and a soybean crop of 2.97 billion bushels, down four percent.
   
Still, the USDA projects ending stocks for both crops will be lower next August than they were at the end of the 2011/12 marketing year – in the case of corn, down about 35 percent to just 657 million bushels.
   
That’s the lowest level since 1995/96, and it’s going to put disappearance, the progress of South America’s crops, and weather conditions for 2013 under the microscope even more than usual.

corn markets
For corn, the November USDA report suggests export sales will take the biggest hit, declining from 1.8 billion bushels in 2010/11 to 1.5 bbu in 2011/12 and 1.15 bbu in the current year – less than half of what the US shipped in the record 2007/08 year.
   
That’s likely to scare off buyers who have only recently begun relying on US corn, prompting them to return to domestic feed sources, and send long-time customers with big corn appetites scrambling for alternative supplies of corn, dried distillers grains with solubles (DDGS), feed wheat, and feed barley.
   
Corn use by US livestock feeders is projected to drop from almost five bbu two years ago and 4.5 bbu in 2011/12 to 4.15 bbu. This reflects the declines in livestock numbers that are already taking place. Beef cattle numbers, for example, have been dropping for a decade, and the US is expected to begin 2013 with less than 30 million beef cows.
   
Sow numbers going into 2013 are projected at just 5.77 million, the lowest level in more than 50 years.
    
Corn use for ethanol is expected to drop from just over five bbu to 4.5 bbu, an adjustment which may be less painful because US fuel consumption in general is down, reducing demand. 
   
The ethanol industry’s aggressive growth rate has also slowed. Last year companies had just 140 million gallons of new or expanded capacity under development, the equivalent of about 52 mbu of new corn use.

renewable fuel
One issue has already been resolved. The Renewable Fuel Standard (RFS) program schedule for adopting biofuels into the US fuel supply requires the use of 13.8 billion gallons of established biofuels, like ethanol, this year. As the 2012 corn crop deteriorated, groups representing hog, broiler and turkey producers petitioned the US Environmental Protection Agency (EPA)  to waive the requirement for the 2012/13 corn marketing season; but in November, the EPA turned down their appeals. Their analysis showed a waiver would have little or no impact on corn, food, or fuel prices. The RFS allows for waivers if the mandate would “severely harm the economy,” but the EPA calculated a waiver would reduce the price of corn by seven cents per bushel at most – not enough to meet the “severe harm” requirement.  
   
Elsewhere in processing, corn use for glucose, dextrose, starch, beverage alcohol, cereals and other dry products as a group is likely to drop less than one percent, but use in high fructose corn syrup (HFCS) is down somewhat more, possibly continuing a pattern of declining HFCS demand in recent years.

soybean markets
While tight, the soybean situation is not quite as severe; late season rains benefited crops in some areas. Soybean carryover at the end of 2012/13 is projected at 140 mbu, better than levels at the end of 2008/09 or 2003/04. The USDA expects a drop of just 17 mbu in exports and 143 mbu in crushings.
   
That still makes for a tight market, which will become even more volatile if weather challenges persist either in Argentina and Brazil’s production or as ongoing drought in the US.
   
Fall rains significantly benefited much of Ohio, central and southern Indiana and Illinois, and parts of Missouri, but as of mid-November, the Palmer Drought Severity Index still showed much of the Corn Belt in moderate to extreme drought.
   
[To track drought conditions in the US, see the maps at the National Weather Service Climate Prediction Center, http://www. cpc. ncep.noaa.gov/products/Drought/ ]. •