Summary Comments on August 10, 2012 USDA Crop Report
The question of “How much would USDA cut yield in the August crop report?” was answered today with the gov’t taking yield down from 146 bpa in July to an incredible 123.4 bpa in this report. The market had been trading a 123 – 127 type number so immediate reaction to the reduced number has been minimal. Harvested Acres were reduced from 88.9 ma in July to 87.4 ma. This was a significant drop but further revisions would not be surprising given the incentive to harvest more for feed (silage) and the uncertainty of the implications for crop insurance in the formula. If a further surprise were to be realized with a lower US crop supply, harvested acres could be that unknown.
On the demand side, it is interesting USDA reduced ethanol demand back to 4.5 bb from 4.9 in July expecting market prices to do the job of rationing without any change in the RFS mandate. Feed and Residual were also lowered 725 mb. It is the duty of the market right now with prices to diminish feed demand on domestic supplies. Corn moving in from Brazil and likely substitution of wheat for feed rations will assist in making this happen. Exports were reduced from 1.6 bb to 1.3 in the August report.
Ending stocks were lowered to 650 mb for August 31, 2013 from 1.183 bb in this report. Ending stocks are unlikely to be significantly reduced much more. Should the supply be reduced in future reports, expect further significant cuts to demand to allow minimal ending stocks to occur. Given the substantial cuts already to feed and exports, where can further cuts be made? Ethanol is the likely choice.
Soybean yields were also reduced from 40.5 bpa to 36.1 in this report. Harvested acres were also reduced 75.3 ma in July to 74.6. This lowered yield expectation was at the lower end of trade expectations and continues to make the s and d table quite interesting going into next year. August weather has significant implication on final yields, so debate over final supply is rational.
On the demand side, exports were lowered again from 1.37 bb to 1.11 bb in this report. Given the fact that China imports 60% of the world’s beans and 60% of US exports, what will be the implication of price elasticity? Will higher prices diminish China’s need for imports from the US in a year where other supplies are scarce due to lower Brazil and Argentina production? So far there is little history to support this fact. The demand side of the soybean table is highly debatable and will continue to result in large fluctuations in daily market prices.
Crush was again reduced from 1.615 bb to 1.515 bb in this report.
US carryout was increased from 664 mb in July to 698 coming from an increase in production. World carryout was reduced from 182.44 mmt to 177.17. It is substantial that the world has wheat inventory to buffer the world feed grains situation.