WASDE preview: Corn hopes rest on revisions to SA production, US stocks

The February update to the World Agricultural Supply and Demand Estimates report is set for publication at a time when the corn market has kicked into life, as low prices relative to other feeds and a fall in the US dollar saw US export muscle finally come to the fore.

With other major observers trimming both Argentina and Brazil’s production on the back of long, dry weather, pressure is mounting for a cut to USDA’s current South American production levels.

As of the January report, Brazil’s corn production has clung to 95 million mt, with Argentina at 42 million mt, but the near-drought conditions have seen many revising their expectations, with Argentina particularly under the microscope.

Some still expect the USDA to cling to its current estimates, with those levels capping the range of analysts expectations, but other are bracing for as low as 39 million mt for Argentina, and 87.1 million mt for Brazil.

On average, the Argentine crop is expected to shed 3 million mt to 39 million, and Brazil a more modest trim to 93.3 million mt, as questions around farmers’ safrinha crop planting intentions still await answers.

That should offer some respite to under pressure corn prices, although some of those supply concerns are already priced in to the CBOT corn futures, and it should be noted  the USDA resisted the temptation to tinker with both Brazil and Argentina’s corn crops in the last outing.

Global corn ending stocks are also under focus – revised upwards with the January WASDE, there’s pressure to return them to their December levels.

Strong feed demand, healthier-than-expected ethanol production, and the expectation of smaller South American crops should all contribute to stocks levels taking a hit.

Global stocks 

January’s edition saw the global corn stock level increased to 206.57 million mt, up from 204.08 million mt, but an average of analysts’ estimates calls for a 2.4 million mt reduction to 204.2 million mt, although some have set their expectation as low as 198.9 million mt.

The US’s part in that, currently set at 2.477 billion bushels, has average expectation of a 10 million bushel reduction in US ending stock levels to 2.467 billion bushels.

Alongside that, there’s a strong argument to revisit the corn to ethanol consumption figure, currently set at 5.525 billion bushels.

“With the September to December ethanol grind up 3.4% year-to-year… a decent case could be made to boost grind by 25 million bushels,” Kelly Herrick of Advanced Trading said in a research note.

US ethanol production has consistently topped one million barrels per day and set a new record production level at 1.1 million barrels at the beginning of December.

While production margins have eroded and stocks have swelled, domestic and export demand has done enough to maintain enough positivity in the margin to ensure that most continue to produce, with consumption already well on track to surpass the current USDA forecast.

Finally, with corn pricing competitively versus other animal feeds, good demand and healthy live cattle figures have given risen to a strong case to revisit the feed and residual values, currently set at 5.55 billion bushels after being revised downwards from 5.575 billion bushels in the December to January release cycle.