Highlights of USDA 10 25 10 Data Users Meeting in Chicago

(From Rich Feltes, RJ O’Brien)

WASDE feed grain analyst noted that neither USDA nor Beijing has accurate handle on PRC reserve corn stocks but these stocks are believed to be “large”.  USDA believes PRC corn carryover stocks are 30-35% of usage.  Current WASDE forecast for 9/11 PRC corn stocks is 60 mmt which is 37% of projected 2010/11 usage of 160 mmt.  If USDA is correct about their 166 mmt 2010 PRC corn production forecast—then 9/11 PRC corn stocks should increase by 7 mmt.  Other private sector analysts believe 2010 PRC corn crop is in mid 150 mmt area.  WASDE head acknowledged that PRC’s National Bureau of Statistics is not as credible source for accurate PRC production and use date as previously believed.

WASDE head underscored importance of 2011 FSU grain production to outlook for global grain stocks and prices.  FSU forestalled livestock liquidation by cutting 2010/11 grain exports.  A back to back crop shortfall could prompt large 2011/12 grain imports placing a further strain on global grain stocks.  CWG reports slightly elevated odds of back to back years of FSU crop adversity.

Attendees unable to pin down USDA panel on seeming disconnect between tightening global corn stocks and Washington initiatives to expand use of corn based ethanol.  The “food vs. fuel” debate—abhorred by ethanol interests—is back on the table.  Despite 5 successive record global corn production years—global corn stocks are declining.

USDA forecasting a 17.3% gain in 2010/11 PRC soy meal usage and 1 mmt (7%) gain in 9/11 PRC soybean stocks.  Torrid pace of early marketing year PRC soybean imports suggests that USDA is understating growth in PRC soy meal usage which in 09/10 advanced by over 19% from the prior year.

USDA is working on next 10 year baseline projections to be released prior to Feb 2011 USDA Outlook Forum Meeting which will focus on risk management.  CMC’s Washington CEO-Christine Cochran—will chair the opening plenary session on Thursday February 24th.  Look for record turnout at breakout session entitled “Thinking—The Best Risk Management Tool”.

USDA underscored that they are unable to make substantive adjustments to the June 30the corn and soybean acreage totals until the Oct crop report as FSA data (showing enlistment in crop insurance programs) is simply not complete until late summer.

Majority of attendee questions directed at NASS officials regarding survey methodology that resulted in higher than expected 9/1/10 US corn stocks and lower than expected Oct 2010 US corn production.  By the end of meeting attendees seemed to grasp heightened risk surrounding key crop reports—especially against backdrop of strong demand and shrinking stocks.   “Nuggets” mined from the lively interchange between USDA and private sector analysts yesterday include:

  • USDA strongly influenced by high percentage of NASS test plots harvested and weighted prior to Oct crop report (91% corn and 84% bean plots) vs. 30% for both last year (per our notes from 11/09 USDA Data Users Conf).  Normal test plot harvest for Oct crop report is 80-80% corn and 70% beans.  Informa rep stated that there is no correlation between percentage of USDA Oct test plots harvested and accuracy of USDA Oct forecasts.  Other analyst disagreed with this contention.  Last year, USDA Oct to Final US corn and soy production each advanced approx 100 mil bu.
  • USDA noted that farmer subjective assessment of 2010 US corn yield is not dropping as fast as objective field data—a confirmation of added weight USDA placed on test plot results in pegging the Oct 2010 US corn yield.  USDA unable to explain highly unusual decline in corn ear population per acre from Sept to Oct 2010 crop reports.
  • Some newly harvested corn may have been “mixed with some of the old crop,” which may have affected the USDA’s stockpile numbers, Gerald Bange, the chairman of the World Agricultural Outlook Board, said in a speech.  Dr. Bange went on to say– “Perhaps what happened here was that because of the early harvest and a better crop and better quality of the crop, some of that new crop went into feed use and export immediately, or was mixed”. USDA noted that 630 mil bu of corn was harvested 9/1/10 vs. 350 mil bu last year, 306 mil bu in 2008 and 670 mil bu in 2007.
  • Sept 1 start to new crop corn marketing year is set by statue thus calls to move up beginning of new crop corn marketing year  to Aug 1(to accommodate early harvest years) will go unheeded.  Additionally, USDA unlikely to breakout feed use of corn vs. residual use of corn due to lack of funding.  Hence, this catch all category (representing the largest segment of US corn use) will continue to confound private sector analysts.  USDA did acknowledge that the best indictor of US corn and residual use is simply the prior year’s corn yield—the higher the prior yield the greater subsequent year’s  F and R usage and vice versa.
  • USDA noted that lower than expected June 1 corn stocks on the June 30th report (which marked beginning of summer/fall corn rally) likely related to poor quality 2009 corn that after transfer from farm to pipeline clocked in with lower TW and hence fewer bushels than producer previously reported to NASS.  Back to back years marked by low TW corn in 2009 and flood/summer heat induced reduced 2010 corn yields (due in part to N leaching) set stage for historic surprises on the 9/30/10 stocks and 10/8/10 crop reports.   One veteran crop scout with over 3 decades of experience tracking US corn yields noted that 2010 growing season was unlike any he had monitored.
  • Key drivers of remaining adjustments in 2010 US corn and soy production will be lab results from remaining un-harvested test plots (9% corn test plots and 16% of bean test plots), producer feedback on subjective surveys and extent of damage to remaining 2.1 bil bu of un-harvested corn and 300 mil bu of un-harvested beans as of 10/26/10  from unusual late Oct high wind storm.  Meanwhile, private sector analysts are looking at how better than expected corn yields in NW Corn Belt may offset what many believe are still overstated corn yields in the eastern Mid West.

Bottom line—volatility and risk will be elevated ahead of upcoming Jan 12, 2011 final crop and stocks report.  Additionally, blind DC policy making geared to increased use of US corn for ethanol and land resources for bio-mass crops regardless of tightening global corn stocks will not go un-noticed by fund managers.  Suspect that meeting overall left attendees less confident about further cuts in the 2010 US corn yield.

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