USDA released their September report today and it has been considered bullish for corn, neutral for cotton and bearish for soybeans and wheat. Outside influences may have as strong an influence on the market as this report as the Dollar is stronger at 77.57 up .27, oil is up 0.98 a barrel at 88.22 and the Dow is up 60 points right before the close at 11,048 after spending most of the day down. Profitability outlook for 2012 is at the end of these comments.

Corn

USDA in this month’s report lowered ending stocks 20 million bushels from August to 920 million bushels for the 2010/11 marketing year on 10 million bushel increase in food use for sweeteners and a 10 million bushel increase in exports. The trade was expecting ending stocks to be raised to 956 million bushels. The season average price for the just ended 2010/11marketing year is estimated at $5.20 bushel. World ending stocks for 2010/11 increased 54 million bushels to 4.894 billion. Changes made in the 2011/12 projection on the production side were a 417 million bushel reduction in production on a 4.9 bushel per acre decrease in yield. Based on summer heat and dryness across most of the Corn Belt, USDA estimated corn yields at 148.1 bushels per acre compared to the average trade guess of 149.1 bushels and last month’s estimate of 153 bushels. Harvested acreage was left unchanged with total production estimated at 12.497 billion bushels, which despite the reduction in yield would be the third highest ever. Imports were lowered 5 million bushels. As supply was reduced 442 million bushels demand was reduced 400 million bushels as feed and residual use was reduced 200 million bushels, corn for ethanol cut 100 million bushels and exports reduced 100 million bushels. Ending stocks for 2011/12 are projected at 672 million bushels, a decrease of 42 million bushels from August and 36 million bushels higher than the average trade guess of 636 million bushels. The stocks to use ratio is estimated at 5.3%, which if realized would be the 2^nd tightest in modern history. The season average price projected to range from $6.50 to $7.50 a bushel, an increase of 30 cents on both ends and an indication from USDA that prices will have to go higher to bring usage in line with their projections. Global corn stocks are estimated to increase 113 million bushels from the July report to 4.622 billion bushels on higher beginning stocks and decreased production in the U.S. and decreased usage. Global consumption was lowered 289 million bushels mostly reflecting lower expected use in the U.S.  December corn closed up 9 cents at $7.45 ½ a bushel on what is considered a bullish corn report. Technical’s have a buy bias with support at $7.17 and resistance at $7.62 a bushel. I am currently 50% forward priced for 2011 and 25% priced using a December $6.90 Put option locking in a futures floor of $6.34. I would look to sell the remainder 25% across the scales. Harvest level prices above $7 a bushel are hard to turn down, so un-priced storage needs to be evaluated carefully.  Over the past 30 years the average difference between the September projection for U.S. ending stocks and the final estimate has been 331 million bushels with 13 years below the final estimate and 17 years above.  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 old crop marketing year which ended July 31 estimates U.S. ending stocks at 2.60 million bales, down 250,000 bales from the August report on a 20,000 bales decrease in exports, a 100,000 bale increase in domestic use, and a 170,000 bale increase in use in the catch all category of unaccounted (this category reflects the difference between the previous season’s supply less total use and ending stocks).  This puts the stocks to use ratio at a 14.2% with the season average price left at 81.5 cents per pound. World ending stocks were lowered 1.02 million bales to 43.97 million bales for the old crop marketing year, mainly on reductions in ending stocks in the U.S. and India. The 2011/12 or current crop marketing year reflects a 100,000 bale increase in ending stocks at 3.4 million bales on a 240,000 bale decrease in supply from last month and an 300,000 bale decrease in use. Production is estimated at 16.56 million bales, virtually unchanged from last month although planted acreage increased about 1 million acres to 14.72 million acres. With a huge amount of failed and abandoned acres in Texas, the number to watch is harvested acres and it is estimated at 9.85 million acres, an 180,000 acre increase from last month. All cotton yields were estimated at 807 pounds per acre, a drop of 15 pounds from August. Domestic mill use is left unchanged at 3.8 million bales while exports were lowered 300,000 bales to 12.0 million bales. The projected price range for 2011/12 was left unchanged at 85 to 105 cents per pound. The stocks to use ratio is estimated at 21.5%. World projections reflect lower beginning stocks with ending stocks 750,000 bales lower than the August projection at 51.91 million bales.  Production increases in China more than offset decreases in Pakistan, Turkmenistan, and Uzbekistan.  This is more a neutral report for cotton. There are several areas to watch over the next few months including production both in the U.S. and abroad. U.S. production is still slightly higher than some private estimates because of drought and hurricane damage. The extent of flood damage in Pakistan is still uncertain with some reports, which may be unreliable, reflecting higher losses than USDA estimates. China is supposedly building their reserves internally which may require their mills to import more cotton than currently estimated. World economic concerns have strengthened the Dollar lately and that usually is negative on cotton prices. These are some unknowns for now that will play out over the next few months. December futures closed at 112.29 cents per pound, up 0.42 cents.  Technical’s have a buy bias with support at 109.80 cents and resistance at 114.50 cents. Current quotes on 2011 equities are in the 50.50 cent range. Keep in contact with your cotton buyer on current quotes. I would be 45% priced at this time. Over the past 30 years the average difference between the September projection for U.S. ending stocks and the final estimate has been 1.4 million bales with 14 years below the final estimate and 16 years above. 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

USDA lowered old crop ending soybean stocks 5 million bushels from last month to 225 million bushels for the 2010/11 marketing year that ended August 31. Crush was raised 5 million bushels reflecting higher than expected crush numbers for July. The season average price for 2010/11 was left at $11.35 a bushel and the stocks to use ratio is 6.9%.  Global ending stocks for 2010/11 were raised 15 million bushels at 2.529 billion bushels. In the 2011/12 new crop marketing year, yields were increased .4 bushel from August at 41.8 bushels per acre compared to pre-report trade estimates of 41.04. Harvested acreage was unchanged from August resulting in production of 3.085 billion bushels, an increase of 29 million bushels from August and 53 million bushels more than the average trade guess. Ending stocks for 2011/12 are increased 10 million bushels from last month to 165 million bushels as the increase in production is partially offset by a 5 million bushel reduction in beginning stocks and a 15 million bushel increase in exports. The trade was looking for a stocks number of 152 million bushels. The season average price for 2011/12 is estimated to range from $12.65 to $14.65 a bushel, up 15 cents on both ends. Stocks to use ratio is projected at 5.2%.  World ending stocks for 2011/12 are projected to increase 59 million bushels from the August estimate to 2.298 billion bushels. November soybeans closed down 30 ¾ cents at $13.96 per bushel. Technical’s have a buy bias with support at $13.62 and resistance at $14.49 a bushel. Unless actual yield reports start coming in that refute USDA’s yield estimates, a fall high may have been put in. There is a chance of frost damage on part of the Upper Midwest crop, but so far that forecast has not been factored in prices. Prices could drop back to the mid $13 level until more is known on yields. In weekly comments, I am currently 50% priced for 2011 and have locked in a $13.21 futures floor with a November $14 put option on 25% of production.  Over the past 30 years the average difference between the September projection for U.S. ending stocks and the final estimate has been 80.8 million bushels with 9 years below the final estimate and 21 years above. 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

U.S. projections for 2011/12 raise ending stocks 90 million bushels on a 10 million bushel increase in expected imports, a 5 million bushel decrease in food use, and a 75 million bushel decrease in exports. Ending stocks are estimated at 761 million bushels compared to pre-report trade estimates of 667 million bushels. Imports are increased on larger supplies in Canada; food use is decreased based on U.S. Bureau of Census mill grind estimates; exports are lowered on larger supplies and competition from Canada and Europe. The season average price is estimated to range from $7.35 to $8.35 a bushel, up 35 cents on the bottom side and up 15 cents on the top side and is also supported by higher corn prices. World ending stocks are projected at 7.150 billion bushels, up 210 million bushels from the August estimate as beginning stocks increased and world production increased more than consumption. This would be the 2^nd largest stocks number in the past decade. December wheat closed down 2 ½ cents at $7.27 ¼ a bushel. Technical analysis shows a strong sell bias with support at $6.99 and resistance at $7.48 a bushel. July 2012 wheat closed at $7.86 ½, down 3 cents. Technical analysis shows a strong sell bias with support at $7.58 and resistance at $8.07 a bushel.  Overall, this report was bearish wheat, but wheat may garner support from the corn market and concerns over winter wheat seeding in drought plagued areas. Over the past 30 years the average difference between the September projection for U.S. ending stocks and the final estimate has been 110 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. The next USDA Supply & Demand report will be released October 12, 2011.

Supply and Demand Projections and Historical Data Source: USDA

2012 Profitability

This table should be used as a guide as yields, prices, and expenses will vary among producers and locations. Since producers have starting making decisions on planting wheat for 2012, I am starting to look at projected profitability for the 2012 crop year. Please note that the table below reflects 2012 profitability. This table looks at crop prices as of September 12, 2011 for 2012 and can give a glimpse of what crop profitability is in Tennessee as of this date. One of the expense items that have to be watched is fertilizer. For reference, in variable expenses below, fertilizer expense per acre is estimated as follows: cotton – $ 148, Soybeans – $51, Corn – $169 (includes 150 units of N), Milo – $134, and wheat/soybeans – $130. Production cost will be updated as new information for 2012 becomes available. Please Visit with your farm supplier on estimated cost in your area. 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.