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Friday, May 09, 2008

Agriculture Report Looks Pretty Bullish

The DBA tracks wheat, corn, soybeans and sugar.

The latest USDA crop supply and demand estimate is out. It looks pretty bullish to me -- just remember that things can turn on a dime. Here's my take ...

The USDA US Crop Supply and Demand Report should be bearish for wheat. The fact that wheat prices are up on this report is very bullish indeed. And bullish outlooks on soy and corn should light a fire under those grains.

It was something of a mixed report. The USDA says US soy supply will be smaller than expected, while it is also expressed worries about planting delays for corn.


I think the outlook for corn is worse than the report allows. In fact, I’d say the USDA is downright unrealistic.

Corn yields are projected at 153.9 bushels per acre, 1 bushel per acre below the trend, thanks to slower progress in plantings. But the projected yield assumes a mid-May planting progress near the 10-year average and reflective of last year's May planting pace. But we already know that this year, corn plantings are slow... in fact, much slower than year-ago in the major corn producing states

A more realistic projection would probably be 152 bushels per acre – and even that would be pushing it. That would really drop the carryover in stockpiles and imply much higher prices.

Globally, coarse grains production for 2008/09 is projected at 1.1 billion tons, up slightly from the current year record, despite the year-to-year decline in U.S. corn output.

Well, the USDA is staffed by experts, and they probably know better than me. So let’s just say I’d use any dip in corn prices as an opportunity to get long, because I think the USDA will be adjusting its forecasts down the road.


In the US, total production is projected at 2.4 billion bushels, up 16% from 2007/08. However, because wheat stockpiles had hit historical lows, this will only raise total wheat supplies by 4%.

Globally, wheat production for 2008/09 is projected at a record 656 million tons, up 8% from 2007/08, and up 5% from the previous record in 2004/05. World wheat ending stocks are projected at 124 million tons, up 13% from the current year's projection.

That sounds bearish, but wheat prices were up this morning last I checked. That kind of tells me the market might have different ideas. Probably the bet is that the weaker US dollar is going to make US wheat very popular and foreign buyers will be buying it at an even faster pace than they are now.


Soybean production is projected at 3.1 billion bushels, up 520 million bushels from 2007/08. Soybean supplies are projected at 3.3 billion bushels, up just 3% from 2007/08 despite higher planted area. Most of the production gains are offset by sharply lower beginning stocks.

My take: This small rise in soybean production will be hard-pressed to keep up with rip-roaring demand for soybeans and soy oil from China. Yes, prices are going higher this morning. They’ll probably go higher yet.


In other projections, I’m not sure if the global rice numbers (the US rice crop pretty much isn’t changing from year to year) take into account the devastation to the Myanmar rice crop after a massive cyclone hit that area. Maybe they harvested much of it already, but we’ll have to see.

Also, the USDA sees beef and pork production down slightly and chicken production up slightly. That’s probably a recipe for higher prices across the board. China’s domestic pork production is supposed to recover, but that remains to be seen as well.


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