December Supply and Demand Estimates
Typically, the December World Agricultural Supply and Demand Estimates (WASDE) report is not the most exciting event of the year. Not much new information generally crops up between November and December, and so it is with this year’s December report. There were a couple of notable tweaks here and there in the report, though.
Starting with the U.S. balance sheet, USDA made some relatively small revisions to corn use. Estimated corn used for ethanol production was bumped up by 25 million bushels to reflect continued stronger-than-expected ethanol production in November. On the other hand, continued sluggish export sales led to a 50 million bushel drop in projected corn exports. On net, then, corn ending stocks projections were raised by 25 million bushels compared to the November report. This is not a huge increase, of course. The significance of the figure, to the extent that there is any, is that the corn stocks-to-use ratio—which had been projected to decline ever so slightly this marketing year—is now projected to increase for the third year in a row, climbing above the 13 percent mark for the first time since 2009/10.
The other notable change in this month’s WASDE report had to do with world rice figures. For 2015/16, estimated world rice production was reduced by just over 4 million metric tons (mmt), largely reflecting lower production estimates for India. Rice consumption estimates were also reduced in this month’s report, but not by enough to offset the lower production, resulting in a further drawdown in world rice stocks.
If USDA’s estimates hold, this will be the third consecutive year that rice consumption has outstripped production. The shortfall in production this year, at 15.3 mmt, will be the largest since 2003. World rice stocks do appear to be getting legitimately tight. Global rice stocks are projected to total just 88.4 mmt by the end of the present marketing year. This equates to a world stocks-to-use ratio of 18.2 percent—the tightest level of world stocks since 2006/07—the point at which world rice stocks bottomed out following about half a dozen years of decline.
Tight world rice supplies had a significant effect on the market in the 2006 to 2008 time period. For example, around harvest in 2006, U.S. rice prices received by farmers averaged around $9 per hundredweight (cwt). Shortly after harvest in 2008, with global supplies still near those multi-year lows, the U.S. price received by farmers climbed to over $19 per cwt. To this point, rice prices this time around are showing little sign of rallying on as projections call for dwindling world supplies.
The major difference in the market now in comparison with 2006-2008 is that supplies of other food and feed grains are relatively large and growing. In 2006/07, as rice stocks reached their lowest point, world wheat supplies were also at their lowest level in the entire post-war period (and were heading even lower, not bottoming out until 2007/08). Corn stocks were also at their lowest point in many years and were not expected to build due to strong demand growth from the biofuel sector and from a surging China.
The difference in the overall supply picture for grains now in comparison with 2006/07 is evident with all grains are considered together. Figure 1 shows the stocks-to-use ratio over the past twenty years for all food and feed grains reported by USDA Foreign Agricultural Service in their Production, Supply, and Distribution (PSD) database. This includes barley, corn, millet, oats, rice (milled), rye, grain sorghum and wheat.
To see the complete report click here.
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