USDA’s final 2011 corn production estimate and the December 1 corn stocks numbers surprised the corn market. The March 2012 futures price declined by 52 cents per bushel in the two sessions following the release of the reports. According to Darrel Good, a University of Illinois agricultural economist, – part of the surprise came as a result of the average expectation of a smaller 2011 crop estimate. With the absence of any supporting evidence, it is not clear why, on average, analysts expected a 30-million-bushel reduction in the estimated size of the crop.

The remainder of the surprise is the result of incorrect expectations about the level of feed and residual use of corn during the first quarter of the 2011-12 marketing year. The market anticipated a high level of use. But, the surprisingly large estimate of September 1, 2011, stocks implied a very low level of feed and residual use during the final quarter and for the entire marketing year.

According to Good, the seasonal pattern and the total implied feed and residual use of corn during the 2010-11 marketing year is still troublesome. Explanations for the low level of use center on the potential for overestimating the amount of corn used to produce ethanol, increased feeding of distiller’s grains, and/or an underestimation of the size of the 2010 crop.

Good adds, – with year-ending stocks of U.S. corn still expected to be a relatively low 6.7 percent of projected use, a lot of price uncertainty remains.

Courtesy: NAFB News