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GRAINS
Prepared by Prudential Securities, Inc.
The USDA will release the long-awaited June 1 Stocks In All Positions report and the June Acreage report before the opening on Monday, June 30. These reports are very important to the market in the short term and could have immediate price ramifications if the reports vary significantly from what the trade is expecting.
Acreage Report
This report will estimate 1997/98 plantings using the first survey data of the season. The USDA estimates planting intentions on March 31 every spring, but this week's report is a survey of what actually went in the ground. In years of normal weather during planting (like this year) there typically is a tight fit between the March 31 intentions survey and the June 30 survey of actual plantings.
This year's March 31 report projected corn plantings at 81.4 million acres versus 79.5 million last year. The market is anticipating a slight increase from the March report due to excellent spring weather that allowed for rapid corn planting. The trade's range for corn plantings is 81.2-82.1 million acres, essentially up about 1% from the March estimate; the average trade guess is 81.8 million acres. Our plantings estimate is slightly higher, at 81.9 million acres. Using the USDA's harvested ratio of 92% and its above-trend yield of 131 bushels per acre, an increase in plantings to 81.9 million acres could potentially increase production 52 million bushels to 9,892 million versus the USDA's current estimate of 9,840 million.
Over the last 10 years, corn plantings in the June 30 Acreage report have increased an average of 500,000 acres from the March 31 Intentions report, a figure in line with our estimate. In order for the corn plantings figure to make a significant difference to the market this week, the USDA would have to produce a number well under or well over the trade range, as well as buck history. We do not anticipate that the corn Acreage report will have a significant impact on the market.
Winter wheat seedings are fairly well quantified at 48.2 million acres. and Monday's report will reflect surveys only for spring wheat seedings. The March Intentions report indicated that U.S. farmers were going to plant 3.2 million acres of durum wheat and 17.8 million acres of other spring wheat. Generally, the trade expects slight increases in both categories. We are expecting spring wheat plantings to increase slightly to 17.9 million acres with durum plantings declining marginally to 3.1 million acres. In durum, the trade range is wide, ranging from 2.93 million to 3.5 million acres, due to one low-ball estimate from a firm notorious for its extreme predictions. Excluding that low estimate, the trade range for durum wheat is 3.1-3.4 million acres, with an average of 3.2 million. The trade is anticipating other spring wheat plantings between 17.6 million and 18.8 million acres, with an average trade guess of 18.2 million acres.
Stocks In All Positions Report
The trade is expecting the June 1 corn stocks in all positions to be reported between 2,415 million bushels and 2,560 million, with an average guess of 2,476 million; our estimate is 2,463 million. The USDA estimated corn stocks as of March 1 at 4,494 million bushels.
The feed/residual demand component is the key corn figure in question for Monday's report. We project that the feed/residual demand component consumed 1,170 million bushels in the third quarter, following strong consumption rates in the previous two quarters. Fourth-quarter feed usage will depend upon wheat feeding, which has already been economically viable in southeast rations for several weeks. From March through May, the United States exported approximately 415 million bushels of corn. Based on historical third-quarter usage rates, we estimate that food/seed/industrial use topped 451 million bushels during that same time. Although there has been some speculation that ethanol production never fully recovered to previous levels and may be a drag on demand, that probably will not be recognized by the USDA until the fourth quarter.
For wheat, the trade is expecting the USDA to come in around 466 million bushels in stocks, with estimates ranging between 447 million bushels and 490 million; the March 1 figure was 8.221 million. We are at the low end of the estimated range at 447 million bushels. Export inspections through May 31 imply larger exports than USDA is carrying on the books. Because there is little likelihood that the USDA will reflect increased exports in Monday's report, we've increased the negative feed/residual demand by 13-15 million bushels to represent exports that were not accounted for. Because this Stocks report is for the last quarter of the 1996/97 marketing year, it essentially provides the ending stocks figure for that crop year. We do not expect the USDA will vary tremendously from its current ending stocks estimate of 460 million bushels (except as noted above), a figure that is also fairly well anticipated by the trade. Most likely, this report for wheat will be viewed as neutral.
June 30, 1997 Tom Levis
Prudential Securities, Inc.
One New York Plaza, New York, New York
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