The global supply of both corn and soybeans will tighten next year as world feed demand remains strong, according to USDA’s latest World Supply and Demand Estimates released in mid-October.
World production of corn is expected to reach 839 million metric tons, down slightly from September’s estimated 841 million metric tons. USDA now estimates that global feed demand will be 504.49 million metric tons, also down slightly from the department’s September projection of 505.84 million metric tons.
With feed demand expected to remain buoyant, the stocks-to-use ratio for the global corn supply has dropped to 13.7%. During the 2007-08 crop year, when corn prices were driven higher by a world wheat shortage, the global stocks-to-use figure was between 17 and 18%. According to Matt Roberts, agricultural economist with Ohio State University, this month’s global stocks-to-use ratio is the lowest since at least 1985.
"Why have we seen the slide in corn prices over the last six weeks? Harvest pressure. The basis has weakened as corn has come off, and for the time being we don’t have that sense of panic," says Roberts. "When people start to look at the various scenarios of what could happen, we could see corn prices move higher."
In its recent report, USDA estimates 2012-13 corn production in Brazil at 70 million metric tons, down slightly from the current 2011-12 crop of 72.73 million metric tons.
"If South America comes out with a big crop, that could take pressure off U.S. exports and reduce the draw on the U.S. corn supply," says Roberts. But that’s a big if in Roberts’ mind because Brazil is just now planting its 2012 crop.
"We have not seen the demand destruction we would need to see to justify recent price declines," he adds. "In six to eight weeks, the panic will return."
Global Bean Supply Also Tight
USDA expects world production of soybeans to increase due to large crops in South America and expects world carryout to grow. The department projects a world bean crop in 2012-13 of 264.28 million metric tons, up 3.4% from its September estimate of 258.13 million metric tons, but still substantially smaller than the 2011-12 crop of 238.11 million metric tons.
The 2012-13 world carryout is projected to grow to 57.56 million metric tons, up from the previous year’s 54.79 million metric tons.
The global stocks-to-use ratio is now 22%, according to Roberts’ calculations. By comparison the 2008-09 ratio was 19.2%. "The soybean market is tight," says Roberts. "USDA statistics, I believe, underestimate how tight it is."
If, for instance, the world stocks-to-use ratio is calculated using the 2012 South American crop, the one harvested this past spring, and the North American crop being harvested now, the stocks-to-use ratio would drop to 12 or 13%. "If we just look at the calendar year, we are as tight as we have ever been in soybeans," says Roberts.
World demand for soybeans, particularly from China remains strong. "There’s more upside in soy from now through March or April because the market is so physically tight," says Roberts.
On Oct. 18, the National Bureau of Statistics in Beijing released China’s third-quarter gross domestic product (GDP), which showed year-over-year expansion of 7.4%. GDP also increased from the previous quarter after slowing for seven consecutive quarters, suggesting that the Chinese economy could be bottoming out before resuming its growth trend. Continued growth in China’s GDP would be supportive of world soybean prices.