USDA released their monthly supply & demand projection today with more market reaction coming from outside influences such as a lower dollar and higher crude oil than from the report.  The next USDA report will be May 11, 2011.

Corn

Unexpected and shocking is how some analyst described this month’s USDA report as USDA left ending stocks at 675 million bushels, the same as March’s report. This after the March 31 Grain Stocks report indicated that corn stocks were 167 million bushels lower than thought. The trade had estimated ending stocks at 586 million bushels in the average pre report guess. Changes made in the U.S. numbers include a 50 million bushel increase in corn for ethanol to 5 billion bushels which was offset by a 50 million bushel reduction in corn for feed and residual use. USDA listed strong blender incentives, positive ethanol producer margins, and rising gasoline and ethanol prices as reason for the increase. USDA lowered feed and residual use based on increased prospects for 2011 soft red winter wheat production which they estimate will compete with corn for feed in poultry and hog production.  The stocks to use ratio is still at a tight 5.0%, equal to the all time modern low from 1995/96.  The season average price for 2010/11 is forecast to range from $5.20 – $5.60, an increase of 5 cents on the lower end and a decrease of 5 cents on the top side. World ending stocks for 2010/11 decreased 28 million bushels to 4.820 billion bushels reflecting mainly increased domestic usage, the bulk of which was in China. Futures opened lower, but rebounded as it appears the trade may question USDA’s stocks number and have concerns on the tightness of stocks with the 2011 production. The market is closely watching planting weather and although all the intended corn acreage may get planted, it is the timeliness that may be of concern. Later planted corn generally has lower yields and this is a year where trend line to above trend line yields is needed to increase stocks from the current level. May futures traded mid day up 7 ¼ cents at $7.66 ¼ a bushel.  September corn traded mid day up 5 ¾ cents at $7.07 ¾ a bushel. I am currently 45% priced for 2011 and would use a trailing stop of $6.50 before pricing more. End users appear to be continuing buying the breaks with technical’s still having a strong buy bias. Over the past 29 years the average difference between the April projection for U.S. ending stocks and the final estimate has been 8.8% or 152 million bushels. These numbers can and will change, but do reflect the best information and estimates at the time of the report.  

Supply and Demand Projections and Historical Data Source: USDA

Cotton

USDA’s projection for the 2010/11 marketing year estimates U.S. ending stocks at a record low of 1.6 million bales, down 300,000 bales from the March report. This puts the stocks to use ratio at a tight 8.2%. Production from 2010 was reduced 215,000 bales or 10 pounds an acre based on the final Cotton Ginnings report. Domestic mill use is raised 100,000 bales, reflecting recent activity. The projected range for the 2010/11 marketing year is raised 1 cent on both ends to 81 to 84 cents per pound.  World production is reduced 400,000 bales as decreases in the U.S., African Franc Zone, Turkey, and Pakistan where partially offset by an increase in Brazil. World consumption was raised resulting in world ending stocks of 41.55 million bales, a reduction of 830,000 bales from March. This is a friendly report, but was somewhat expected as the drop in production has been known since March 25.  December futures traded mid day at 136.49 cents per pound, down 1.45 cents.  Technical’s have a strong buy bias.  Keep in contact with your cotton buyer on current prices as well as forward pricing alternatives. I would be 40% priced at this time and use a trailing stop of 126.75 cents as a place to price more if the market should fall back. If the market continues to go up, move your stop up.  If you think that stop is too tight with current prices, a little wider stop would be 111.33 cents. Over the past 29 years the average difference between the April projection for U.S. ending stocks and the final estimate has been 6.4% or 400,000 bales. These numbers can and will change, but do reflect the best information and estimates at the time of the report.

Supply and Demand Projections and Historical Data Source: USDA

Soybeans

Unlike corn, traders were not completely surprised that USDA left ending soybean stocks unchanged from last month at 140 million bushels. A very slight decrease was expected, based somewhat on lower stocks in the March 31 Grain Stocks report. Exports were projected down 10 million bushels from last month reflecting slower than expected shipment pace through March along with competition from larger crops in South American. Crush is reduced 5 million bushels due to an increase in the extraction rate. Seed use is reduced reflecting intended acres from the March 31 Prospective Plantings report. Residual use which seems to be a catch all category is raised based on the March 31 Grain Stocks report. The season average price for 2010/11 was up 15 cents on the bottom end and down 35 cents on the top end and is forecast to range from $11.25 – $11.75 bushel.  Global ending stocks for 2010/11 were raised 96 million bushels at 2.239 billion bushels mainly on increased production in Brazil. A mostly neutral report has given way to higher crude oil and a lower dollar as soybean prices mid day are trading higher. May soybeans traded mid day at $13.86 ¼ bushel, up 23 ½ cents per bushel. November soybeans traded mid day up 22 ½ cents at $13.88 per bushel. Technical’s have a strong buy bias. I am currently 50% priced for 2011 and would wait until late spring-early summer before forward pricing more. Over the past 29 years the average difference between the April projection for U.S. ending stocks and the final estimate for has been 18.3% or 51.4 million bushels. These numbers can and will change, but do reflect the best information and estimates at the time of the report.  

Supply and Demand Projections and Historical Data Source: USDA

 Wheat

USDA lowered wheat stocks slightly 4 million bushels resulting in ending stocks of 839 million bushels as compared to the pre report guess of 857 million bushels. This was on a small increase in seed use based on the March 31 Prospective Planting report. The season average price for all wheat is lowered 10 cents on each end is projected to range from $5.50 to $5.70. Global wheat supplies were raised 34 million bushels to 6.718 billion bushels, about expected by the trade. Wheat prices are up at mid day reflecting more on weather concerns for the Plains and outside influences such as the lower dollar as well as trending with corn and soybeans. July wheat traded mid day up 10 cents at $8.19 a bushel. Technical’s have a hold bias. On my comments, I am currently 50% priced for 2011 and would hold off pricing more until we get further along in the spring. On any substantial rallies, I would look to the options market as a price risk management tool.  Over the past 29 years the average difference between the April projection for U.S. ending stocks and the final estimate has been 6.1% or 37 million bushels. These numbers can and will change, but do reflect the best information and estimates at the time of the report. The next USDA Supply & Demand report will be released May 11, 2011.

Supply and Demand Projections and Historical Data Source: USDA

Profitability

This table should be used as a guide as yields, prices, and expenses will vary among producers and locations. This table looks at crop prices as of April 8, 2011 and can give a glimpse of what the market is saying to plant in Tennessee as of this date. One of the expense items that has to be watched is fertilizer. For reference, in variable expenses below, fertilizer expense per acre is estimated as follows: cotton – $ 137, Soybeans – $48, Corn – $153 (includes 150 units of N), and Milo – $123. Farm diesel cost has risen with fuel cost based on a $3.50 per gallon farm diesel cost.  Producers with owned land and or cash rent can use Returns Over Variable as a guide in decision making. Producers with share rent ground should use Returns Over Variable and Land Costs as a guide with their appropriate share rent calculated. A land cost of 25% of revenue is used in the table as a guide or method of comparison and should not be construed as the appropriate rent for a particular area. Producers who are not making major equipment changes can use UT budgets and this table as a guide in developing their own cropping decision budgets. If equipment changes are being made, then a whole farm financial plan would be better suited as a decision aid. Please contact your local County Extension office or Area Specialist – Farm Management for assistance in developing your own budget or farm financial plan.

Some differences have occurred due to rounding.