USDA Feed Outlook

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15 June 2012

USDA Feed Outlook - June 2012

The 2012/13 U.S. corn balance sheet is unchanged this month. Corn ethanol use for 2011/12 is projected up 50 million bushels this month to 5,050 million as recent ethanol production data have been stronger than expected.

Corn Ethanol Use Strong, Exports Slow for 2011/12

While slowing from its peak in December 2011, ethanol production and use has been partly sustained by ethanol exports, as declining gasoline use and limits to blending ethanol have curbed domestic use. While corn use for ethanol has not yet slowed in response to the prevailing corn-price inverse (higher nearby old-crop prices versus lower newcrop prices), U.S. exports and export sales have slumped. The corn exports forecast for 2011/12 is reduced 50 million bushels to 1,650 million. Foreign corn supplies are increased this month for 2011/12 and 2012/13, boosting export competition and increasing projected global stocks.

Domestic Outlook

U.S. Feed Grain Supplies Steady This Month

U.S. feed grain production prospects for 2011/12 are unchanged this month at 323.5 million metric tons. Production for 2012/13 is projected at a record high 389.6 million metric tons, a 66.1-million-ton gain from the 2011/12 marketing year. Total use for 2011/12 is unchanged from last month as higher corn use for ethanol is offset by a decline in corn exports. Trade projections for sorghum, barley, and oats are also adjusted for 2011/12. Exports declined 1.6 million tons while imports slip 171,000 tons. Projected feed and residual was increased by 141,000 tons to 119.8 tons. Ending stocks edge up 7,000 tons to 24.2 million.

The projected balance sheet for 2012/13 is virtually unchanged, with slightly higher carryin resulting in higher ending stocks as production and use remain unchanged from last month’s projections.

There are no changes in projected prices this month.

Record-Early Corn Crop Promising as Condition Rates Remain Good

As of the week ending June 10, USDA’s weekly Crop Progress report from the National Agricultural Statistics Service (NASS) rated 66 percent of this year’s corn crop as good or excellent, compared with 69 percent last year. Of the crop, 8 percent was rated poor or very poor, compared to 6 percent a year earlier. The percentage of corn rated fair is slightly greater than last season at 26 percent, compared with 25 percent a year earlier. Pennsylvania, South Dakota, Minnesota, and North Dakota had the highest condition ratings with 80 percent exceeding good or excellent. Missouri, Indiana, and Tennessee had the highest very poor to poor ratings.

Early-season crop condition ratings provide little indication of final yields as rainfall and temperatures over the next several weeks will ultimately determine this year’s production. The percentage of the crop rated good or excellent was 69 percent in both 2010 and 2011 for reporting weeks comparable to June 10 this year. The U.S. corn yield in 2009 was a record 164.7 bushels per acre, 7.7 bushels above the 1990-2010 trend. The 2011 yield was 147.2 bushels per acre, 14.5 bushels below the 1990-2010 trend.

Offsetting Changes in Corn Use Leave 2011/12 Carryout Unchanged

Corn supply projections were unchanged this month. Corn use for ethanol in 2011/12 was increased 50 million bushels as fourth-quarter ethanol production is expected to exceed earlier estimates. Weekly reports from the U.S. Department of Energy’s Energy Information indicate ethanol production is not slowing in spite of tight corn supplies and diminished producer margins. At 5,050 million bushels, corn used for ethanol is at a record level. Weekly production, while not reaching the levels achieved late last year, have remained robust, partially due to higher-thanexpected ethanol exports for the year. Declining gasoline consumption because of the economic slowdown and increased vehicle efficiency continue to be drags on ethanol consumption, due to limits on the proportion of ethanol in gasoline. Corn exports are projected 50 million bushels lower this month at 1,650 million as recent sales and shipments have been below expectations and global competition, especially from Brazil, is expected to increase, reducing fourth- quarter expectations for U.S. exports. Feed and residual use for 2011/12 is unchanged from last month's projection.

With supplies steady at 13,506 million bushels, and total use unchanged at 12,655 million bushels, ending stocks are the same as last month’s projection and remain historically tight at 851 million.

On June 29, NASS will update U.S. corn planted acreage from the farmer planting intentions reported in the March 30 Prospective Plantings report. That same day, NASS will also release its estimate of June 1 feed grain stocks in the quarterly Grain Stocks report. The July Feed report will update feed grain supplies and use accordingly. On August 10, NASS will release its first survey-based forecast of the 2012/13 corn crop in the monthly Crop Production report.

Sorghum Balance Sheet Adjustments Mostly Offsetting for 2011/12

Sorghum imports for 2011/12 are increased slightly by 0.012 million bushels, resulting in a projection of 0.013 million. The sorghum export projection for 2011/12 is lowered 10 million bushels to 50 million. Projected sorghum feed and residual is increased 10 million bushels, leaving ending stocks up 0.012 million bushels at 26.9 million bushels, reflecting the small increase in reported imports. Shipments to Mexico are expected lower as U.S. sorghum supplies remain tight.

Barley: 2011/12 Trade Changes Raise Carryout

Barley imports for 2011/12 are projected 4 million bushels higher than last month’s forecast due to abundant supplies in Canada combined with record low domestic U.S. supplies. Projected U.S. exports are down 3 million bushels due to tight supplies. Carryout is projected 7 million bushels higher at 52.1 million bushels, the lowest level recorded.

Lower Oats Imports Reduce 2011/12 Feed and Residual Use and Ending Stocks

Projected 2011/12 oats imports are lowered 15 million bushels reducing total supply to 216.3 million bushels. Canada’s oat supplies are not a constraint as production was up in 2011. However, U.S. import demand appears weaker than expected. U.S. feed and residual use is projected down 5 million bushels. Supply and use is otherwise unchanged, resulting in projected carryout of 52.3 million bushels, down 10 million bushels this month.

Feed and Residual Use Down in 2011/12

The 2011/12 U.S. feed and residual use for the four feed grains plus feed wheat on a September-August year is projected at 127.4 million metric tons, down 2.1 million tons from the previous year. Feed and residual use per grain-consuming animal unit (GCAU) is projected at 1.37 tons in 2011/12, compared with 1.39 tons in 2010/11. Total GCAUs are projected up slightly on the year to 93.3 million. GCAUs are expected to be up for the year because of increased production of poultry and pork as demand begins to strengthen in the livestock sector, but lower cattle numbers partially offset the increases. Feed and residual use per animal unit is reduced this month because shifts in feed use were offset by slightly lower livestock numbers.

For 2012/13, feed and residual use for the four feed grains plus wheat are projected at 147.6 due largely to more corn feeding. GCAUs are projected to decline slightly to 92.6 resulting in an increase for feed and residual use per GCAU to 1.59 tons.

Weekly Crop Progress Shows Corn Planting Completed Early

The NASS Crop Progress report for the week ending May 21, 2012, reported record corn planting progress as farmers took advantage of this year’s early planting season. At 96 percent, planting was well ahead of the same time last season, when only 75 percent was planted. This year’s planting was also rapid when compared with the 2007-2011 average of 81 percent.

International Outlook

World Coarse Grains Production Up for Both 2011/12 and 2012/13

Global coarse grain production in 2012/13 is projected up 3.6 million tons this month to 1,231.6 million, mostly based on increased area prospects in some countries. World corn production is increased 4.2 million tons to 949.9 million, but barley is cut 0.7 million to 134.7 million. There is also a small increase for millet prospects in Ukraine.

The 2012/13 corn area forecast for China is raised 300,000 hectares to 34.3 million as net returns per hectare for corn continue to be more favorable compared with soybeans (soybean area is also forecast lower by 300,000 hectares). This 2.0 million-ton increase brings China’s total corn production in 2012/13 to a record 195 million tons.

A good illustration of corn’s expanding competitiveness relative to soybeans in China is visible in the important grain-producing province of Heilongjiang, which typically accounts for 40 percent of national soybean area and 13 percent of national corn area. The chart below shows the ratio of soybean to corn cash prices in Heilongjiang during March, as farmers started to make planting decisions and purchase inputs for the upcoming corn crop year. Rapidly expanding domestic demand for corn on the industrial and feed side, as well as supply constraints, continues to enhance the competitiveness of corn in China.

Technology has also played a role in the expansion of corn area in China. Availability of high-yielding early maturity corn varieties has enabled farmers to plant corn in areas previously only planted to soybeans, such as in Heilongjiang where the number of frost free days per year is the lowest in China.

EU 2012/13 corn production is increased 1.1 million tons this month to 64.2 million based mostly on increased area reported for Hungary and Poland. Dryness and cold winter temperatures hurt some winter rapeseed and wheat, causing winter-kill that has increased area sown to spring-planted crops. EU barley prospects are nearly the same as a month ago as a significant area-based increase for Germany, and smaller increases for Poland, Hungary and Italy, are offset by a significant reduction for Spain and a small decline for Bulgaria, countries where reduced area and yield are confirmed by preliminary harvest reports.

Russia’s corn production for 2012/13 is raised 0.8 million tons this month to a record 7.8 million as planting reports indicate producers have sown more than 100 percent of planting intentions. Last year’s corn crop was profitable compared to most other crops, and this year, area is forecast up 23 percent. Russia’s barley area is also raised this month, but winter barley yields have come in below expectations, offsetting the area increase. Sowing progress reports from Belarus indicate a sharp increase in corn plantings, boosting production prospects 0.3 million tons to a record 1.3 million.

World coarse grain production for 2011/12 is estimated up 2.5 million tons this month to 1,145.0 million, with all the changes in corn. The largest increase is for Brazil, up 2.0 million tons to a record 69.0 million. The second-crop corn has received exceptionally favorable rains in areas like Mato Grosso, where the dry season normally cuts corn yield potential. The huge second crop more than offsets reduced first-crop area and below-trend first-crop yields, boosting the total corn production to record levels. For the first time, second-crop yields are estimated higher than first-crop yields, with second-crop accounting for nearly half of corn production. Partly offsetting is a 0.5-million-ton reduction for corn production in Argentina, to 21.0 million as excessive rains and flooding have delayed the corn harvest and caused some yield loses.

China’s statistical agency recently reported 2011/12 corn production at a record 192.78 million tons, up 1.03 million from last month’s USDA estimate.

Increased Beginning Stocks Boost 2012/13 Supplies

Global coarse grain beginning stocks for 2012/13 are up 1.2 million tons this month to 162.4 million. Corn beginning stocks are up 1.6 million to 129.2 million, while barley is down 0.3 million tons to 21.8 million. Oats and rye beginning stocks are trimmed slightly, but sorghum beginning stocks are up slightly.

The largest increase in 2012/13 beginning stocks is for corn in China, up 1.03 million tons to 59.0 million, as revised 2011/12 production boosts supplies. Brazil’s corn stocks are increased 1.0 million tons to 14.1 million as half the 2011/12 production increase is expected to be used (for exports and domestically for feed and residual), and half carried into the new marketing year. Other changes to corn stocks this month are smaller: the EU is down 0.2 million tons to 5.4 million as increases in 2011/12 feed use and exports limit carryover stocks; Russia is trimmed 0.1 million tons to 0.1 million as 2011/12 exports are raised this month; with smaller reductions in corn beginning stocks for Indonesia, Argentina, and Taiwan; and a tiny increase for Belarus. Russia’s 2012/13 barley beginning stocks are reduced 0.3 million tons as 2011/12 exports and feed use are increased. Based on 2011/12 trade changes, 2012/13 barley beginning stocks are up for the United States and Iran, but reduced for the EU and Argentina.

World coarse grain supplies projected for 2012/13 are up 4.8 million tons this month as both production and beginning stocks are increased. Corn supplies are up 5.8 million tons but barley is down 1.0 million.

Coarse Grain Use Projected Higher This Month

Global coarse grain use in 2012/13 is projected up 2.0 million tons to 1,206.2 million tons. Corn total disappearance is forecast up 2.4 million tons to 923.4 million, with feed and residual use up 3.8 million to 553.3 million. However, barley feed use expectations are down 0.5 million tons to 91.4 million.

EU 2012/13 corn use is forecast up 2.0 million tons this month to 69.5 million, with all the increase in feed and residual use. More corn and less wheat are expected to be fed to livestock in the EU in 2012/13. EU corn production prospects are up this month while expected wheat production is reduced. Moreover, with corn prices in international markets relatively cheap compared to wheat, imports into grain deficit regions such as Spain are expected to shift to more corn and less feed-quality wheat.

China’s 2012/13 corn use is boosted 1.0 million tons this month to 201.0 million, with increased supplies. Corn feed and residual use is increased 2.0 million tons to 139.0 million, as meat production is expected to continue to expand and residual disappearance is likely to increase with the larger crop. However, food, seed, and industrial use of corn is forecast down 1.0 million tons this month based on reports of a slowdown in demand for starch.

Belarus’s projected corn feed and residual use is forecast up 0.1 million tons to 0.9 million based on the record crop. However, for Russia, feed and residual use of corn is reduced 0.3 million tons to 5.2 million, despite the record crop, because Russia is projected to export a significant share of its supply. There is also a small decrease in expected corn use for Georgia and a tiny increase for Hong Kong.

Projected world barley use for 2012/13 is trimmed 0.5 million tons to 135.7 million. Barley feed use for Turkey is cut 0.4 million tons to 5.2 million due to lower production. Reduced production in Syria and tighter beginning stocks in Russia trims feed use 0.1 million tons each. However, for Iran, increased beginning stocks boost projected barley feed use.

Global Coarse Grain Ending Stocks Prospects Increase

World 2012/13 coarse grain ending stocks are forecast up 2.8 million tons this month to 187.7 million. Corn stocks are forecast up 3.4 million tons to 155.7 million, but barley is projected down 0.5 million to 20.9 million. Rye and oats stocks are down slightly, while sorghum is increased slightly.

China’s 2012/13 corn ending stocks are projected up 2.0 million tons to 59.8 million. Higher forecast production and beginning stocks are expected to outstrip increasing use. This may be reflected in the recent softening of corn prices in China. Brazil’s 2012/13 corn ending stocks are forecast up 1.0 million tons to 13.9 million due to increased beginning stocks supported by the huge second-crop production in 2011/12. Corn ending stocks for Indonesia in 2012/13 are up 0.4 million tons to 1.4 million as increased imports are expected to support supplies and prevent a stocks drawdown. There are small increases in projected corn stocks this month for Belarus, Malaysia, and Georgia, but reductions for the EU, Argentina, Taiwan, and Nepal.

Barley ending stocks for 2012/13 are projected lower this month for the EU (-0.2 million tons), Russia (-0.2 million), and Argentina (-0.1 million) due to tight beginning stocks, and for Syria and Turkey because of reduced 2012/13 production prospects. These more than offset forecast increased U.S. barley stocks.

Record World Corn Trade in 2012/13 Projected Up this Month

Global corn trade in 2012/13 (October-September) is forecast to reach a record 103.5 million tons, up 2.1 million this month. Competition between exporters is expected to keep corn prices attractive for most importers during 2012/13. Brazil’s large second-crop corn in 2011/12 will mostly be exported in the 2012/13 October- September trade year with exports projected up 1.0 million tons this month to 11.5 million. Prospects for a record 2012/13 corn crop in Russia support a continuation of aggressive corn exports as in 2011/12. Russia’s projected 2012/13 corn exports are up 1.0 million tons this month to 1.5 million. Record corn production in Belarus also is expected to boost export prospects, up 0.1 million tons to 0.3 million. The U.S. corn export projection for 2012/13 remains at 48.0 million tons (1.9 billion bushels for the September-August marketing year). As of May 31, 2012, outstanding sales for the 2012/13 marketing year reached 5.5 million tons, up 43 percent from a year earlier, supporting prospects for strong U.S. corn exports.

EU 2012/13 corn imports are projected up 1.0 million tons this month to 7.0 million. The EU is expected to import corn to use as animal feed and feed less wheat to livestock, maintaining relatively stable meat production. Indonesia’s corn imports are forecast up 0.5 million tons to 2.0 million. With corn prices declining, and corn use increasing year to year, Indonesia is expected to maintain stocks by keeping imports at the previous year’s level.

Forecast Lowered for U.S. Corn and Sorghum Exports for 2011/12

U.S. corn exports for 2011/12 (October-September) are reduced 1.0 million tons to 42.5 million based on the slower-than-expected pace of recent sales and shipments (down 50 million bushels to 1.65 billion for the September-August marketing year). U.S. Census corn exports for September 2011 through April 2012 reached 28.5 million tons, down 2.0 million from the previous year. May export inspections were 3.1 million tons, down 0.9 million from a year ago. As of May 31, 2012, outstanding export sales for the current crop year reached 7.7 million tons, down 2.2 million from a year earlier. The size of additional sales that get shipped before the end of the marketing year depends on many factors, but two appear crucial at this point. The inverse between old-crop and new-crop futures prices gives importers an incentive to wait until the new crop is harvested before taking shipment. Conversely the amount of early corn harvest could boost exports during the current crop year. Simple correlations of these variables indicate they are useful for forecasting corn exports at this time in the crop year, and support this month’s reduction.

Russia’s 2011/12 corn export pace has been strong, and exports are projected up 0.5 million tons to 2.0 million. Argentina’s 2011/12 corn exports are also boosted 0.5 million tons to 14.5 million as prompt shipment of recently harvested corn increases the amount expected to be shipped before October 1, 2012. However, Brazil has not shipped as quickly as expected, so 2011/12 exports are forecast down 0.5 million tons to 10.0 million. EU corn exports are increased 0.2 million tons to 2.7 million based on ample export licenses. Import licenses are also larger than expected, boosting the EU corn import forecast 0.5 million tons to 5.5 million.

U.S. sorghum exports for 2011/12 are cut 0.25 million tons to 1.4 million (down 10 million bushels to 50 million for the marketing year). The pace of shipments in recent months has been extremely slow as old-crop supplies are limited by the small U.S. production. However, a recent increase in sales may indicate some shipment of new-crop sorghum before the start of the next marketing year, limiting the drop in forecast exports. Mexico’s sorghum imports are forecast 0.2 million tons lower due to tight U.S. supplies.