June 9, 2011

Corn

USDA in this month’s report left ending stocks from May at 730 million bushels for the 2010/11 marketing year, compared to the average trade guess of 715 million bushels.  The stocks to use ratio is still at a tight 5.4%.  The season average price for 2010/11 is forecast to range from $5.20 – $5.50, an increase of 10 cents on both ends. World ending stocks for 2010/11 decreased 187 million bushels to 4.624 billion bushels mainly on higher China corn consumption offsetting higher production. In somewhat of a surprise, USDA for 2011/12 went ahead and lowered planted acres 1.5 million acres to 90.7 million acres rather than wait for the June 30 Acreage Report. Projected harvested acreage was also lowered 1.9 million acres to 83.2 million acres reflecting lower planted and most likely a loss of acreage in the Missouri River basin.  Yields were left at the May level of 158.7 making production of 13.2 billion bushels, a drop of 305 million bushels. The only adjustment on the demand side was feed use and it was dropped 100 million bushels. Ending stocks for 2011/12 are projected at 695 million bushels, a drop of 205 million bushels from May. The average trade guess was 800 million bushels. The stocks to use ratio is estimated at 5.2% with the season average price projected to range from $6.00 to $7.00 a bushel, an increase of 50 cents on both ends. Global corn stocks are estimated to decrease 13.4% or 679 million bushels from the May report to 4.405 billion bushels on lower beginning stocks and increased consumption in China. China’s ending stocks were reduced 472 million bushels reflecting their struggles on production to keep pace with rising usage. September corn closed up 18 cents at $7.54 a bushel. Technical’s have a strong buy bias with support at $7.16 and resistance at $7.83 a bushel. I am currently 50% priced for 2011 and would make catch up sales to 50% and then  hold at this level until we get further along in the growing season. Over the past 30 years the average difference between the June projection for U.S. ending stocks and the final estimate has been 630 million bushels with 15 years below the final estimate and 15 years above.  These numbers can and will change, but do reflect the best information and estimates at the time of the report. USDA will release an Acreage Report and Grain Stocks report on June 30, 2011. The next USDA Supply & Demand report will be released July 12, 2011.

Supply and Demand Projections and Historical Data Source: USDA

Cotton

 USDA’s projection for the current marketing year estimates U.S. ending stocks at 2.25 million bales, up 500,000 bales from the May report. This is on a 500,000 bales decrease in exports, reflecting continued cancellations.  This puts the stocks to use ratio at a 12%. The projected price range for the 2010/11 marketing year is 81 to 83 cents per pound, a reduction of 1 cent on the top end.  World ending stocks were raised 720,000 bales to 43.24 million bales for the current marketing year. The 2011/12 marketing year reflects offsetting revisions which leave ending stocks at 2.5 million bales and a slightly higher stock to use ratio of 14.9%. Beginning stocks were raised 500,000 bales reflecting the 2010/11 numbers and production was lowered 1 million bales to 17 million bales on mainly expected higher abandonment from the Southwest drought. Exports were reduced 500,000 bales. The projected price range for 2011/12 is left unchanged at 95 to 115 cents per pound. World projections reflect higher beginning stocks, lower production in U.S. and 500,000 bales lower consumption in China.  Global ending stocks are expected to increase 320,000 bales to 48.25 million bales. China’s stocks to use ratio like the U.S., if realized would be the second smallest in 22 years. In itself, this is a neutral report but the cotton market has reacted favorably in at least, I think, official recognition in production issues for this growing season.  December futures closed at 132.99 cents per pound, up 2.84 cents.  Technical’s have a strong buy bias with support at 128.29 cents and resistance at 136.89 cents. Keep in contact with your cotton buyer on current prices as well as forward pricing alternatives. I would be 45% priced at this time and wait further into the growing year before pricing more. Over the past 30 years the average difference between the June projection for U.S. ending stocks and the final estimate has been 1.7 million bales with 15 years below the final estimate and 15 years above. These numbers can and will change, but do reflect the best information and estimates at the time of the report. USDA will release an Acreage Report and Grain Stocks report on June 30, 2011. The next USDA Supply & Demand report will be released July 12, 2011.

Supply and Demand Projections and Historical Data Source: USDA

Soybeans

 USDA raised ending soybean stocks 10 million bushels from last month to 180 million bushels for the current marketing year. The trade was expecting a number of 173 million bushels. The only adjustment was made in lowering exports 10 million bushels. The season average price for 2010/11 was left at $11.40 a bushel.  Global ending stocks for 2010/11 were raised 26 million bushels at 2.371 billion bushels. Ending stocks for 2011/12 are increased 30 million bushels from last month to 190 million bushels compared to the average trade guess of 165 million bushels. Beginning stocks were increased 10 million bushels and exports were reduced 20 million bushels on reflecting increased competition from South America. The season average price for 2011/12 is estimated to range from $13.00 to $15.00 a bushel, an increase of a dollar on both ends.  World ending stocks for 2011/12 are projected to drop 10 million bushels from the May estimate to 2.263 billion bushels. November soybeans closed down 5 ¾ cents at $13.86 ¾ per bushel. Technical’s have a strong buy bias with support at $13.62 and resistance at $14.15 a bushel. I am currently 50% priced for 2011 and would hold here and or make catch up sales. Over the past 30 years the average difference between the June projection for U.S. ending stocks and the final estimate has been 110 million bushels with 8 years below the final estimate and 22 years above. These numbers can and will change, but do reflect the best information and estimates at the time of the report. USDA will release an Acreage Report and Grain Stocks report on June 30, 2011. The next USDA Supply & Demand report will be released July 12, 2011.

Supply and Demand Projections and Historical Data Source: USDA

Wheat

 USDA dropped wheat ending stocks 30 million bushels this month to 809 million bushels as the 2010/11 wheat marketing year ended May 31.This compares to the average pre report guess of 842 million bushels. Imports were lowered 10 million bushels and exports were raised 20 million bushels. The season average price for all wheat was raised 5 cents on the average to $5.70 a bushel. Global wheat supplies were raised 180 million bushels to 6.875 billion bushels on increased stocks in Russia as feeding is reduced for the last 2 marketing years. Projections for 2011/12 reflect higher production as reported in the June 9 Crop Production report. Harvested acreage was dropped slightly and nationwide yields were increased 0.6 a bushel. Usage numbers were left unchanged from May with ending stock reduced 15 million bushels to 687 million bushels. This compares to the average trade guess of 669 million bushels as the trade was looking for a drop in production. The season average price is estimated to range from $7.00 to $8.40 a bushel, an increase of 20 cents on both ends. World ending stocks are projected at 6.770 billion bushels, up 110 million bushels from the May estimate. Beginning stocks were increased 180 million bushels, production lowered 191 million bushels and usage dropped 121 million bushels. July wheat closed down 3 cents at $7.45 a bushel. Technical’s have a strong sell bias with support at $7.16 and resistance at $7.92 a bushel. On my comments, I am currently at 50% priced and would look to sell the remainder either off the combine at harvest or hold in storage, if available.  Currently, there is carry in the futures market favoring storage to September or December. The basis (difference in cash and future prices) is rather wide for August delivery negating some of the carry. Producers with storage who want to set a floor under their wheat price may want to look at September or December Put options. A December $8.40 Put would cost $0.84 a bushel and set a $7.56 futures floor.

Over the past 30 years the average difference between the June projection for U.S. ending stocks and the final estimate has been 103 million bushels with 17 years below the final estimate and 13 years above. These numbers can and will change, but do reflect the best information and estimates at the time of the report. USDA will release an Acreage Report and Grain Stocks report on June 30, 2011. The next USDA Supply & Demand report will be released July 12, 2011.

Supply and Demand Projections and Historical Data Source: USDA

Profitability Outlook

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 June 9, 2011 and can give a glimpse of what crop profitability is 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. Additional adjustment to costs of production from our budgets reflecting a later planted crop as well as re application of some weed control measures were made as follows: Cotton + $21, Soybeans +$12, Corn +$4 , Milo +$9 per acre. 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.