Wednesday, February 16, 2011
The Corn Supply Is Rapidly Diminishing
A three week supply of corn. Just three weeks worth. That is not much. But that is what we will have at the end of the marketing year on August 31, according to noted grain market analyst Bob Wisner at Iowa State University. Three weeks worth. We need at least four weeks worth to keep the pipeline open. But three weeks? Ask Mama if she will let you plant her garden into corn.
The market has been watching USDA ratchet down its projections for carryout of the 2010 corn crop, and that number dropped to 745 million bushels in the February Supply Demand Report. But Iowa State’s Bob Wisner says the final carryout could be closer to 715 million bushels, which technically is a 2.8 week supply of corn. And he even has less than that as a possibility for the 2011 crop when it’s marketing year ends in August of 2012. Wisner’s analysis of the short crops says the US will be scraping the bottom of the barrel, along with other nations because of the drought in Argentina and Eastern Europe, along with the US Great Plains where the winter wheat crop is meager at best.
Wisner says the prospects for tight supply will create a battle for acres that has not been calculated yet for its intensity. He says corn and beans will be battling in the Cornbelt, but spring wheat will try to get its share of marginal corn ground, and the Southern cotton farmers will try to capture some corn acreage as well. That is about the time that hay will be in short supply and forage producers will want their share of acres as well.
Wisner’s calculations look at various scenarios for carryout and fall delivery prices. He believes the 715 million bushel estimate for August is pretty firm. For the 2011 crop, there is an 18% chance of a 152 bushel national yield that would leave only a 660 million bushel carryout, and that is 2.7 weeks’ worth of corn. He says there is a 65% chance for the new crop to average 162 bushels per acre, and that would still only provide an 835 million bushel carryout, or a 3.2 week supply in August of 2012. For the 2011 crop, Wisner expects a $5.70 December futures price and a $5.00 farmgate price, based on the average crop, not a short one.
The short supply in the pipeline is a concern to Wisner. Years back livestock could be provided with pasture to carry them until the new crop of corn was available. But he says now, “With industrial corn processing rapidly overtaking livestock feeding and with large commercial feeding operations, the industry has less flexibility to reduce corn use in September than in the past.” And he adds, “Our projections imply that above-normal yields will likely be needed to bring major relief from tight corn supplies in 2011-12.”
But corn is not the only story. Wisner says, “For soybeans, indicated supplies for the current marketing year and demand indicators at this point in the season imply that U.S. carryover stocks in weeks’ supply may be the lowest on record. If so, this summer’s U.S. soybean supplies are likely to be even tighter than the low points in the early 1970s and mid-1990s. Early and very tentative indicators for 2011-12 suggest that an above-trend yield likely would be needed to bring substantial relief in the tight soybean supply next season.” Wisner’s balance sheet for soybeans shows a carryout that ranges from 1.9 weeks to 2.5 weeks worth of beans a the end of the marketing year in August.
How many acres are you going to plant, and are you changing any of your cropping plans, based on current market projections? Wisner expects corn acreage to rise from 88.2 million last year to 91.5 million this year. Wheat acres will climb from 53.6 million acres in 2010 to 58.7 million this year. And soybean acres will fall from 77.4 million acres last year to 76.5 million in 2011. But he says those estimates are tentative and actual plantings will be a function of the market price, input costs, insurance provisions, the weather and the ability of farmers to replant in a timely basis.
Summary:
Domestic and global supplies of grain are tight because of weather problems in several parts of the world and strong demand as the economy begins to recover and people demand more food. Additionally, the growing demand on corn is coming primarily from ethanol and the growing demand on soybeans is coming primarily from China, but also from the resumption of biodiesel production. Crop plantings will be important this spring and need to be timely to create a good crop that will allow only minor easing of the tight supplies.
Posted by Stu Ellis on 02/16 at 12:00 AM | Permalink