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Tuesday, April 24, 2012

Yield Prospects Up, Price Prospects Down for 2012 Corn



 

When USDA’s crop statisticians released their crop progress report earlier in the week, 28% of the crop has been planted, about twice the rate of the past five years. Of course, the warm March weather allowed that to happen, but also put some of that crop in jeopardy on April 11 and 12 when sub-freezing temperatures wilted the earliest planted corn.  But that did not destroy the effort of thousands of farmers who ventured into the field in mid and late March.

The odd way that the cold temperatures killed some plants, but allowed adjacent plant to survive was comparable to a thinning process.  Producers will have to make a financial judgment of whether enough plants will be viable to keep the field intact, or whether the field should be replanted.  There have not been enough reports from throughout the Cornbelt to know whether there will be any widespread replanting.  If that happens, the advantage of the early planted crop will be lost.

Although farmers have told USDA they intend to plant nearly 96 million acres of corn this year and the most since 1937, a shortfall of available corn is anticipated late in the summer because of diminished supplies of the 2011 crop.  Hence the reason that many farmers took the risk of early planting to capture premium prices anticipated prior to September 1.

When the new 2012 crop is being hauled to the elevator, prices will certainly be much less than they have been, or will be for the early 2012 corn.  Instead of the $6.73 that December 2012 futures reached last August, December futures could be closer to the $4 level say market analysts and commodity specialists at universities.

The lower price reflects inventory building believes Dr. Darrel Good at the University of Illinois because of expectations for a very large crop with an abundant carryover when the next marketing year is complete.  Even though we are currently consuming more than 13 billion bushels of corn, the potential14.3 billion bushel crop will be more than enough.  Good bases that number on current yield projections, which he calls 162.5 bushels per acre as “seeming most reasonable at this time.”

Currently, the long term trend for an average yield is between 161 and 162.  But Good is boosting that a bit because the early planting means fewer acres will be planted after the optimum planting date which would otherwise lower the average yield. While the amount of surplus determines the price offered by the market, it originates with the yield, says Dr. Jim Hilker at Michigan State University, “If yields are a few bushels above the trend yield used with normal world yields, corn prices could fall to $4.00/bu. at harvest. However, a yield a few bushels below the trend yield could chase harvest prices back up towards $6.00/bu.”

Consumption is also on Good’s mind, which he says is the subject of a lot of uncertainty.  Those include:
1) For ethanol, the rapidly approaching blend wall for E10 and the delays in implementing E15 suggest a plateauing of corn use in that category near the 5 billion bushels expected for this year. 
2) The USDA projects feed and residual use of corn during the current year at a modest 4.6 billion bushels.  While use during the first half of the year suggests consumption could exceed the projection, declining cattle numbers, increased wheat feeding, and more new crop corn feeding point to a slowing of use during the last half of the year. Some modest expansion in livestock production other than beef, less wheat feeding next summer, a lack of increase in distillers grain production, some new crop corn feeding in August, and lower corn prices support prospects for more corn feeding next year.  Feed and residual use might be near 5 billion bushels.
3) U.S. corn exports during the current year are projected at a relatively low level of 1.7 billion bushels, reflecting in part competition from the large world grain crop of last year.  Prospects for less competition from Argentina and perhaps from the Black Sea region next year, along with larger imports by China, point to a rebound in exports to near the long term average of 1.9 billion bushels.
4) With food, seed and industrial use (excluding ethanol) near 1.425 billion bushels, total consumption next year might be near 13.325 billion bushels.
5) With beginning stocks of 800 million bushels and imports of 15 million, stocks at the end of the 2012-13 marketing year would be near 1.79 billion bushels.  Stocks at that level would represent a stocks-to-use ratio of 13.4 percent.
Based on those assumptions and a 13% carryout, Good says the average marketing year price for the new crop would be $4.50 to $5.00.

Summary:
An early-planted crop could lead to a higher average yield, and that leads to more carryout for the next marketing year.  With uncertainty of use, prices for new crop corn could range from $4 to $5 per bushel.

Posted by Stu Ellis on 04/24 at 06:53 AM | Permalink

Comments

One could argue for as much as 400 million additional bushels of new crop corn use, mainly from more exports, but supplies would still be ample without a yield reducing event. It is hard to look at potential 2012-13 corn prices without including an outlook for 2012-13 soybeans. The possible tightness of the 2012-13 soybean crop seems to be the “driver” that could keep corn prices higher than expected/projected. New crop corn basis may fall back into a more traditional range but the futures should/could/would/might hold strong to keep fall nitrogen from being applied. Under this scenario, a more normal carry might return to the corn market, providing a potential return for storage. The June acreage and stocks numbers will either “POP” hopes of higher prices or inflate dreams. Jib aka Gibberish

Posted by: Jib at April 24, 2012 10:10AM

Multi-Year Soybean Sales? A review of the World’s soybean projections from past trends of production and use is in agreement with recent reports. The reports indicate it will take two to three years of elevated soybean production to offset this years decline in ending soybean stocks. The slow recovery of ending supply may keep next year's soybean prices higher than what is now expected. This would seem to require one to more closely examine the “fit” of multiyear soybean sales even with the very good prices currently available in the red months. As noted before, this could put corn in a position to “buy” acres next year. Only time will tell for sure. One “off” Government Report might take us back to the drawing board. Jib aka Gibberish Jib, you really have some powerful binoculars there. ~Stu

Posted by: Jib at April 26, 2012 11:11PM

Mr. Ellis: They are so powerful that there are times when I am not sure what I am looking at. That is when I can keep them in focus. It becomes a form of visual Gibberish. Jib aka Gibberish

Posted by: Jib at April 27, 2012 12:12AM

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