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USDA follow up: Putting today’s report in context

August 10, 2012


As expected, this morning's supply-demand estimates from USDA showed a big reduction in the size of the 2012 corn crop and average yield. Today's report estimates average yield at 123.4 bushels per acre (bpa), down nearly 23 bpa from USDA's July estimate and the lowest yield since 1995. Harvested acres are pegged at 87.4 million, meaning a crop of 10.78 billion bushels (bbu) is expected. This is down more than 2 billion bushels from USDA's July estimate and would be the smallest crop since 2006. Today's USDA numbers were slightly worse than expected by analysts; on average, they had expected a crop of 10.97 bbu on a yield of 126.2 bpa. While this year's harvest will be considerably smaller than initially expected, it is remarkable that farmers are still expected to produce the eighth-largest corn crop on record despite experiencing the worst drought in 50 years and the hottest month of July in recorded history. As for demand, USDA projects significant rationing for all end users. Feed and residual use was dropped to 4.08 bbu, down 15% from the July estimate. Ethanol and co-products use was trimmed to 4.5 bbu, down 8% from July. This implies 12.6 billion gallons of ethanol production from Sep. 1, 2012 to Aug. 31, 2013, along with 35 million metric tons of animal feed. Notably, animal feed production by the ethanol industry would be the equivalent of 1.37 bbu of corn, based on USDA's estimates, meaning total feed and residual use would be closer to 5.45 bbu and net use for fuel ethanol would be closer to 3.13 bbu. Exports were cut to 1.3 bbu, down 19% from July. Ending stocks were reduced to 650 million bushels, the lowest since 1995/96 and second-lowest since 1975/76. Season-average prices are pegged at $8.20/bu. Globally, total grain output (coarse grains, wheat, rice) was cut 2.9%, total grain supply was cut 2.1%, and grain ending stocks were reduced 4.3%. Still, 2012/13 global grain output would be the second largest on record, trailing only last year. Based on today's USDA estimates, the U.S. ethanol industry will use 2.9% of the world grain supply on a net basis in 2012/13, the lowest percentage since 2008/09. While global grain ending stocks are projected lower in 2012/13 than in recent years, they are still estimated to be nearly 4% larger than the 10-year average. World corn production was cut 6% based on the U.S. drought, but total foreign corn production was unchanged from July. Increased production in Argentina, Brazil, and China offset yield reductions in the EU and former Soviet Union. This year's global corn crop will still be the second-largest on record, according to USDA. Reflecting the global nature of the corn market, USDA's report today estimates record U.S. corn imports of 75 million bushels in 2012/13.