The increase in the estimated corn ending stocks for September 1, 2012 in the October 12, 2011 WASDE report is bearish for grain prices and the fertilizer complex. USDA's new estimate is 866 MM bushels, which is higher than the consensus estimate of 808 MM bushels. As such, we would expect fertilizer shares to be under some pressure during the day, especially nitrogen players such as CF (Buy, $180 PT) and UAN (Hold, NT), as higher inventory levels reduce concerns of tight grain stocks. It is important to note that 866 MM bushels still represents a low level of inventory from a historical perspective.
The higher ending stock estimate raises the stock-to-use ratio to 6.8% from prior USDA estimate of 5.3%, which is above market expectation of ~6.2%.
Corn supply levels were increased due to higher beginning stock levels, partially offset by lower harvested acres. Yield expectation were maintained at 148.1 bushels/acre, and demand estimates were actually lowered by 50 MM bushels due to lower exports, resulting in corn ending stock level as of September 1, 2012 of 866 MM bushels.
- Harvested acres were reduced to 83.9, lowering corn supply by ~65 MM bushels (DRCo estimate ~ 83.5 to 84 MM acres (down 0.5 to 1.0 MM acres from 84.4 MM acres)
- Yield per acre was maintained at 148.1 bushels/acre (DRCo. estimate ~ 146.5 to 147.5 (down 0.5 to 1.5 bushels/acre from 148.1 bushels/acre)
- Total production was modestly lowered to 12.4 Bn bushels from prior USDA estimate of 12.5 Bn bushels due to lower harvested acres (DRCo. estimated ~ 12.2 to 12.4 Bn bushels)
- Total demand was modestly lowered by 50 MM bushels from prior USDA estimate of 12.8 Bn bushels driven by lower exports
Average corn farm prices was lowered by $0.30 to a range of $6.20-7.20.