Latest USDA report was largely in line with trade expectations, with modest cuts to Argentinean corn/beans whilst Brazilian beans were also cut. What was considered surprising was world wheat ending stocks was increased by 3mmt, to a new all time high of 213.1mmt. This level has eclipsed the previous high set last decade, while consumption was reduced by 1mmt (680.48mmt). Wheat stocks were helped largely to an upgrade to the Indian wheat crop (+800kt to 86.8mmt). Whilst reductions were made to Ukraine (-1mmt to 6mmt) and Canada's (-500kt to 17.5mmt).
World soybean production (257.47mmt) was reduced by 5.5mmt largely from cuts to South American production. Brazil (-2mmt to 72mmt), Argentina (-2.5mmt to 48mmt) and Paraguay (-1.2 mmt to 6.4mmt). However this would still be the third largest South American crop in history, but many expect further cuts to happen. Although production may have stabilised in some regions of Argentina, further cuts may need to be made especially with dryness in key states in southern Brazil. After a disastrous January, February conditions have turned around sharply in Argentina with frequent showers hitting key growing regions.
USDA lowered world corn production (864mmt) by 4mmt largely on the back of cuts to Argentinean production (-4mmt to 22mmt). There was no reduction for Brazil, with prospects looking good for their secondary smaller winter plantings that have kicked off. World corn ending stocks (125.33mmt) continues to fall, while US ending stocks (20.34mmt) fell 1.14mmt. This compares to 43.38mmt in 2009/10. Stocks to use ratio falls to 6.3%, which would be the lowest since the 1995/96 marketing year.
Ethanol margins are getting squeezed tightly with reports coming through of slowdowns amongst producers in the US now that the 45c tax break has gone. The effects of the removal of the ethanol blenders tax credit, will mean reduced demand for corn from that sector, but also lower DDG (Dried Distillers Grains) production that competes against other feed grain sources. DDG usage is not track by the USDA in their feed grain usage, and with 127mmt of corn being used in ethanol production; this could mean something around 40mmt of DDG being substituted locally and in the export market.
Ukraine has reported that 2.5 - 3m ha of winter grains would likely be lost and re-sown (out of 8.5m ha total), up from a 2.5m ha estimate previously. Although the recent cold snap will potentially cut production in Eastern Europe, main production regions of France, Germany and UK have fared much better. Winter wheat and rapeseed was planted on much wetter soil profile and has enjoyed favourable conditions before dormancy. The ‘unknown’ damage is always worse then the ‘known’ damage, which is hard to quantify until spring growth resumes.
Although it is still very early days into 2012, there are plenty of potential production hot spots that may flare up over the next couple of months. Drought is damaging US winter wheat for the second year in a row. Canadian prairies are extremely dry from a drought beginning last August. Ukraine wheat may be a full blown disaster from historic drought and winterkill losses. Whilst potential bullish patterns are becoming more apparent in the oilseed complex. Continued erosion in South American yields, EU winterkill, looming jostle with corn/beans for US acreage and booming canola exports. There is little room to move for Nth American production adversity, and this should provide underlying support until yields are finalised.