June WASDE Report Holds Few Surprises

The estimate of 2007 U.S. wheat production was nearly unchanged, at 2.17 billion bushels. The winter wheat harvest is well underway, so USDA should have a better idea of the winter wheat crop in the next month or two.

Production estimates for spring-planted crops were mostly unchanged from last month, as the growing season generally is not far enough advanced in the Northern Hemisphere to provide new information. The U.S. supply situation could see major changes at the end of June, when USDA provides updated estimates of 2007 planted acreage. Although the soybean supply/demand outlook remained unchanged from last month, USDA did lower its projection of 2007/08 soybean oil usage for methyl ester, which is used in the production of biodiesel. Profit margins for biodiesel production are being squeezed by extremely high soybean oil prices.

USDA did lower its projection of U.S. corn exports for 2006/07 (old crop) by 50 million bushels, which caused a corresponding increase in projected stocks for both 2006/07 and 2007/08. The end result was projected ending stocks of just under 1 billion bushels for both years. It is certainly not unheard of for corn ending stocks to be this low or lower, but continually rising use levels are causing the markets to watch every bushel closely.

In contrast to the corn situation, U.S. cotton stocks have ballooned to the point that the projected ending stocks-to-use ratio for 2006/07 is nearly 0.5 (50%). Increased world cotton production and the elimination of the Step-2 marketing program have contributed to a drastic reduction in U.S. cotton exports. Combined with rapidly declining domestic cotton mill use, total use of U.S. cotton is expected to drop from 24 million bales in 2005/06 to 18 million bales in 2006/07.