By Jack Scoville, The Price Futures Group

The U.S. Agriculture Department (USDA) released its latest monthly supply and demand updates on February 8th and the estimates contained a few surprises.

The soy complex saw reduced ending stocks for soybeans but a big increase in ending stocks for soybean oil. The report implied that domestic demand will remain very strong for the year. Crushers are processing soybeans for soybean meal for feed needs.

The increase in ending stocks shows that most likely biofuel demand will be less, or that there will be plenty of soybean oil for use in biofuels and vegetable oil-based consumer products no matter what.

The increased consumption of soybean meal most likely reflects the decreased production of DDG from ethanol. We have heard of many ethanol production plants closing in the Midwest over the last couple of months, mostly because there is no corn for the plants to buy and make into ethanol. An important part of the process in converting corn into ethanol is the creation of DDG, which becomes a high-protein feed additive that competes with soybean meal in the ration mix.


USDA did not do much with the export side of the ledger even with sales of both soybeans and products well above seasonal normal rates. USDA assumes that demand from here forward will shift to South America, not a hard assumption to make.

We will know soon enough if USDA is right in this assumption as the crunch time for the exports is just around the corner. Brazil in particular has a huge lineup of boats waiting to take soybeans to buyers, and the ability or not for Brazil to meet those commitments on time will go a long way to seeing if some of those sales get shifted to the U.S.

If many sales get shifted to the U.S., a price rally can be expected because USDA is showing that supplies will be very tight at the end of the year. Watching the export sales and farm selling will be a major thing for analysts in the next few weeks.


Corn ending stocks estimates moved up a little bit as USDA bowed to current reality and cut export demand. It increased domestic demand but not by enough to offset the lost export demand ideas.

Ethanol demand was not changed as the demand is down right now but not down enough for USDA to need to modify the estimate it is carrying for demand for the entire marketing year. Traders in general had expected an increase in ending stocks due to the last export demand, so the report was not considered bearish.

Export demand, at least for now, will remain down. U.S. corn prices are the highest in the world, and Brazil has been offering corn at much cheaper prices. Almost all of the export demand has been taken by Brazil for now. In fact, our reports indicate that Brazil ports are going full steam ahead loading corn now so they can get much of the nearby demand covered before the soybeans hit the ports and dominate the export calendar.

It is at that point where the U.S. might get some business back, but even that window might not last long as Ukraine, for example, will try to grow a lot of corn and as reports from Argentina indicate that the crop might produce more than had been expected a couple of weeks ago.

U.S. domestic markets for corn remain very high priced as well, and so wheat has made it increasingly into feed rations for many types of meats production.


Wheat estimates from USDA were considered bullish for prices. USDA increased feed demand and cut ending stocks, although it was not a trade-off situation. Still, USDA did show a tight situation developing in wheat now, and it has to do with demand.

Wheat is being used instead of corn here in the U.S. for feed, especially soft red winter wheat that has a little less quality and price than the other wheats. However, we have heard that hard red winter is also being used in the Great Plains as it is there and costs much less to ship than wheat or corn from the Midwest.

The report would at least keep downside moves in the wheat market to a minimum. Wheat will start to focus more on the U.S. weather as the winter crops start to come out of dormancy and try to develop.

Wheat is going to be entering its most weather-sensitive time and has little if any moisture to work with now in large parts of the central and southern Great Plains. Wheat will hold better now due to these USDA estimates, but the big moves down the road will depend on the weather.

A crop failure could send U.S. prices sharply higher from current levels. As it is now, U.S. soft red winter wheat prices are about as cheap as any in the world.

How high prices can go in a weather market here will depend primarily on Europe and Russia. Good crop production there will go a long way to keeping world prices down and will limit the upside for U.S. Wheat.
Wheat should be a weather market for the next few weeks if not longer and can move sharply higher or somewhat lower depending on how the weather turns out.


Rice data was mostly neutral to prices. USDA increased ending stocks estimates slightly due to increased imports, but made no other changes.

Rice did not care and is focused instead on available supply now and for the new crop that will become available in the U.S. fall months. Right now there is very little rice available in first hands, that is to say it is still owned by farmers in Texas or Louisiana. There is still rice up in Arkansas, but farmers are waiting before selling.

There are also legitimate questions on how much rice will get planted this year in the U.S. Corn and soybeans pay better and take less work.

Last year, rice farmers told everyone they would plant less as the same situation existed, but many ended up planting big rice crops on ideas that no one else will.
This year, the farmer seems less interested in planting rice and more interested in planting other crops and taking the sure money. The report on planted area ideas will be released by USDA at the end of March. Then, we will have a better idea of the production potential for rice this year.

By Rene Pastor

Agriculture Secretary Proceso Alcala mapped out plans to encourage farmers to plant up to three rice crops this year so the Philippines, one of the world’s top importers of the grain, can hit a highly-touted target to be self-sufficient in rice in 2013.

The Agriculture Department is aiming to boost unmilled rice production to 20 million metric tons, up over 11 percent from the record harvest of 18 million tons in 2012. The Department will encourage farmers to plant right after harvesting the summer crop in May, and then do a quick turnaround by planting another rice crop in mid-September.

The quick turnaround will cover 300,000 hectares that are irrigated, and participating farmers will be given free seeds and crop insurance coverage, vital since they will be planting in the middle of the Philippine typhoon season.

As another incentive, Alcala instructed the National Food Authority to “intensify” its rice buying program. The NFA is the government agency in charge of the rice market, and it plans to buy at least 615,000 tons of rice this year.

The Agriculture Department will also expand a credit program in the country’s 20 rice-producing provinces, taking particular aim at farmers who belong to irrigating associations in an attempt to boost production.

There is a lot of skepticism in the rice market the Philippines can hit the mark.

The Department’s Bureau of Agricultural Statistics said rice inventories as of Dec. 1, 2012 dropped nearly 16 percent from year-ago levels to 2.61 million tons. That is equivalent to 77 days of consumption, the BAS says, which is close to the 90 days or three months’ worth of rice stocks considered prudent for a country of nearly 100 million people.

That number is deceiving. NFA warehouses only hold 18 days of rice stocks and commercial warehouses have 20 days. Some 39 days of rice stocks are in private households which the public does not have any access to.
The government has enough rice stocks for less than three weeks of daily consumption – a level that is wafer thin at best. What this means is that the Philippine government is ill-prepared if a major typhoon strikes a major rice-growing area.

Given surging demand and a growing population, there are a lot of doubts the Philippines will be self-sufficient in rice.

A report by the U.S. agriculture attaché at the U.S. embassy in Manila about two weeks ago said that despite increased rice output, rising demand will force the country to import 1.5 million metric tons of rice, the same amount it imported in 2012.

Attaché reports are compiled by U.S. agricultural experts in its embassies even if they are not considered official data issued by the U.S. Agriculture Department. But they are considered as highly reliable by industry experts and the commodity trading community.

“As a matter of government policy, a 90-day national rice buffer stock entering the third quarter of each year should be maintained,” the report said. “At an estimated national daily rice requirement of 34,000 tons, ending rice stocks in marketing year 2012/13 would be sufficient for around 40 days.”

The Philippines is also hemmed in by the amount of land it can plant to rice, currently around 4.69 million hectares, and dwarfed considerably when compared to Vietnam’s 7.41 million hectares and Thailand’s 10.25 million hectares.

By Jack Scoville, The Price Futures Group

Palm oil had a quiet week last week in the run-up to the Lunar New Year and likely faces another slow week this week. China is closed all week and the exchange is closed for a couple of days.

But the market is starting to move a bit from where it has been. Traders are noting seasonal declines in palm oil production in Malaysia and Indonesia, and this trend will continue for a few months. Indonesia increased its export tax for palm oil last week.

But the big news was that shipments of palm oil to China were passing inspections and being admitted into that country. All this means is that demand should hold together and the huge stocks levels seen now should start to work at least a little lower in the coming months.
This implies that prices should at worst work sideways for a while. Stocks are at record highs right now, so a major rally is not likely, but some price strength is very possible given the attitudes that have been seen in this market lately.

Before it was only increasing supplies and worries the Chinese would not take another ton into the country. Now we know they will, and supplies should come down due to less production.

So attitudes should improve and prices should trade unchanged to higher even with plenty of supply on hand. The big supplies just mean that prices should not go a lot higher. But slowly decreasing supplies have never meant that prices need to keep going down, and they most likely will not.

Weather is still generally good for palm oil production, but there have been some reports of flooding in Malaysian production areas. It is all part of the seasonal decline in production indicated earlier.

The continuation charts (for palm oil futures in Kuala Lumpur) also imply that prices can move higher in the weeks ahead. Anyone waiting for the lows to buy palm oil should probably take a fresh look at the situation and the prices now and get current with purchases.


The Philippine Agriculture Department said the country should produce a record corn crop of 8.0 million metric tons in 2013.

In a statement, the Department said corn output would be up from a record production of 7.41 million tons in 2012.
“Surplus yellow corn production countries will be exported to interested countries, in partnership with the private sector,” Agriculture Secretary Proceso Alcala said.

The caveat to hitting the target is the string of late season typhoons which struck premier corn-growing areas in the southern island of Mindanao, agriculture officials said.

“Corn production may decline compared to the 2012 level as some areas have yet to recover from damages brought by typhoons,” a report from the Bureau of Agricultural Statistics explained.

That throws into question the idea whether the Philippines will be able to export corn and take advantage of cheaper shipping costs to a top consumer such as China, which uses the grain for its large herds of pigs and cattle. Philippine corn growers had asked permission from the government to export from 200,000 to 400,000 tons of corn to take advantage of higher world prices caused by the worst drought in 25 years which hit the U.S. Midwest last year.

The increase in Philippine corn production was caused mainly by an increase in harvested area caused by higher farmgate prices.

Corn-harvested area stood at 2.59 million hectares, almost 2 percent up on last year’s 2.54 million hectares.

Philippine corn yields increased over 4 percent to 2.86 tons per hectare, from 2.74 tons in 2011.

Corn and rice are staples in the central and southern Philippines. It is also used heavily as livestock feed in the country.


Indonesia’s crude palm oil (CPO) production is expected to rise 2.1 million metric tons to hit 28 million metric tons in 2012/13, although problems lurk in some areas in the country, a report by the U.S. Agriculture attaché said.

The attaché report is compiled by U.S. agriculture experts at its embassy in Jakarta. They are not official U.S. Agriculture Department data, but they are considered authoritative and influential by the commodity trade.
Indonesia is the second biggest palm oil producer in the world behind neighboring Malaysia.

The attaché report said that some smallholder planters in some provinces of Sumatra and Kalimantan have not been able to sell their palm fruits to palm oil mills since September 2012, forcing the farmers to leave the fruit unharvested.

“Abandoned palm fruits are expected to cut CPO production in MY 2012/2013. The downward trend of CPO prices since early 2012 has triggered exporters to maintain stocks and wait for better prices. Consequently, palm oil millers are experiencing longer-than-normal CPO’s inventory turnover. This leads mills to stop additional palm fruit processing until they can move their CPO stocks to the ports,” the report said.

The report added that state-owned and private oil palm plantations are expected to implement replanting initiatives that may impact up to 500,000 hectares.
“Should the replanting program be accomplished in 2013, Indonesia could see a significant decrease (possibly as much as 2.0 MMT) reduction of CPO from its supply chain,” the report added.


Indonesia, the most populous country in Southeast Asia, will import little if any rice in the 2012/13 marketing year (August/July), a report by the U.S. agriculture in Jakarta said.

The report is written by U.S. agriculture experts in the U.S. embassy in Indonesia. It is not official U.S. Agriculture Department data, but is considered as authoritative by the commodity trading community.

The report said Indonesian commodity logistics agency BULOG will have rice ending stocks in 2012 of 2.3 million metric tons.

“The ending stock is already more than the secure level of ending stock that must be held by BULOG that is set at 2 million tons. Considering the current stock held by BULOG, combined with the assumption that BULOG will be able to procure the same amount of rice from the domestic market as last year and an assumption that BULOG will distribute the same amount of rice for raskin (rice for the poor) as last year, BULOG will be able to maintain its secure level of ending stock by the end of December 2013.

“Therefore, BULOG will not need to import during MY 2012/13,” it said, adding that any imports will consist “of the carryover imports by BULOG in 2012, imports of specialty rice, and small amount of illegal rice trade at Indonesian border areas.”
The Indonesian government’s use of imports to bolster stocks has created a situation where further importations will not be necessary in the months ahead.

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