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Sunday, February 24, 2013

Even with high use, high corn and bean production drives market prices lower


After several years of $5-7 corn prices, and a nudge of the $8 mark, USDA’s forecast of a $4.80 average for the 2013/14 marketing year was a 2 by 4 wake-up call about what could happen in a return to normal yields with large acreage.  $4.80 average farmgate prices will put many operating budgets in the red, particularly if they include higher levels of cash rent. Let’s take a deeper look at the numbers below the headline from USDA’s Outlook Forum.


The initial forecast for a $4.80 average cash price for corn in the 2013/14 marketing year came from the presentation of USDA’s Chief Economist Joe Glauber.  In his remarks at the outset of the Outlook Forum, Glauber said, “Farm prices for most grain and oilseeds will be lower, reflecting larger domestic and world supplies. A return to trend yields will likely push corn prices down significantly as stock levels rebuild. Corn prices are forecast to average $4.80 per bushel in 2013/14, down 33 percent from 2012/13’s record levels and, if realized, the lowest average price since the 2009/10 marketing year.”  Regarding soybeans, he went on to say, “Likewise, larger supplies and increased carryout will weaken soybean prices to $10.50 per bushel, down 27 percent.”



Following Glauber’s presentation Thursday, USDA’s Economic Research Service (ERS) released its detailed projections for the supply and demand of the 20113 corn crop that will impact every Cornbelt marketing plan.  The ERS analysis indicates, “Corn plantings are projected down slightly on the year, but production is expected to be record high with more acres harvested for grain and a rebound in yields. Feed and residual use rises sharply with the larger crop. Weak gasoline consumption limits the recovery in corn used to produce ethanol and strong foreign competition tempers the rebound in exports.  Corn ending stocks are projected to more than triple, pushing prices sharply lower. Soybean planted area is projected slightly higher than last year with favorable net returns, increased double cropping, and reduced cotton plantings. Soybean supplies are projected to increase as higher production more than offsets lower beginning stocks and imports. Soybean ending stocks are projected to rise from the exceptionally low level projected for 2012/13 as competition from South America limits potential export gains.”


Here are the details:


  1. Acreage: 

  • Corn plantings for 2013 are projected at 96.5 million acres, down 0.7 million acres from last year’s 75-year high.


  • Strong new-crop prices in both the futures and cash forward markets support a highly favorable net returns outlook, much as it did last year at this time. New-crop futures during the first half of February averaged $5.70 per bushel and bids for fall delivery at Central Illinois elevators during the same period averaged $5.45 per bushel.


  • A return to more normal spring weather is expected to reduce this year’s planting opportunities for corn and leave more land available for soybeans.


  • Soybean planted area is projected at 77.5 million acres, up 0.3 million from 2012 and up 3.6 million from last year’s planting intentions. New-crop soybean futures prices and current forward pricing opportunities are somewhat higher than last year at this time both in level and relative to corn.


  • Favorable soybean prices combined with higher winter wheat seedings in traditional doublecrop states compared with 2012 will increase the potential for double cropping, especially in the SRW wheat areas of the eastern Corn Belt and the Delta states.



  1. Corn Supply, Demand, Price


  • Corn production in 2013 is projected at a record 14.530 billion bushels, up 3.750 billion or 35 percent from the drought-reduced 2012 crop. The 2013/14 corn supply is projected to rise 28 percent to a record 15.187 billion bushels.


  • Harvested area is projected at 88.8 million acres, up 1.4 million from 2012 and the highest since 1933. Although planted area is projected down slightly on the year, harvested area expands with a return to more normal yields, more normal abandonment rates, and a reduction in area harvested for silage.


  • The national average yield is projected at 163.6 bushel per acre, up 40.2 bushels from last year’s drought ravaged yield. A return to normal summer weather supports a sharp recovery for corn yields as fall and winter dryness have little correlation with conditions during the following growing season and eventual yield outcomes. The trend projection is based on a yield model that accounts for summer precipitation and temperatures in determining expected yields.


  • Total corn us is projected at 13.010 billion bushels, up 1.773 billion from 2012/13.  Feed and residual will be 5.400 billion, with much of the 950 million increase expected in residual disappearance.  Food, seed, and industrial use will be 6.110 billion bushels, with ethanol requiring 4.675 billion bushels.  The decline in ethanol production stems from fewer miles driven and increased mileage efficiency.  Exports will be up 600 million to 1.5 billion bushels.  Ending stocks will be 2.177 billion.


  • Favorable forward pricing opportunities are expected to provide some support for prices received by producers early in the 2013/14 marketing year, but harvest time cash prices are expected to fall to near $4 per bushel. The season-average farm price is projected at $4.80 per bushel


  1. Soybean Supply, Demand, Price


  • Soybean supplies for 2013/14 are projected at 3.545 billion bushels, up 11 percent from 2012/13 as larger soybean production more than offsets lower beginning stocks and projected imports. Soybean production is projected 13 percent higher at 3.405 billion bushels mostly reflecting yield gains above last year’s drought-reduced level.


  • The national average soybean yield is projected at 44.5 bushels per acre, up 4.9 bushels from last year’s drought-reduced level. The trend projection is based on a weather-adjusted yield model that accounts for temperature and rainfall during the growing season.


  • Soybean domestic use is projected at 1.795 billion bushels, up 3 percent from 2012/13. Crush is projected to expand by 45 million bushels to 1.660 billion—supported by more competitive soybean meal exports and a moderate increase in domestic demand. Based primarily on expansion in the pork and poultry sectors.


  • U.S. exports are projected to rise to 1.5 billion bushels in 2013/14 on larger supplies and increasing foreign demand, boosting the U.S. share of global trade. However, U.S. exports will likely face stiffer competition from South America, where exportable supplies will be much  higher than in 2012/13. Foreign demand will be driven by China, which typically accounts for more than half of world imports.


  • U.S. soybean ending stocks for 2013/14 are projected at 250 million bushels, the highest since 2006/07 and double the level projected for 2012/13. Despite a 7-percent increase in total use of soybeans, the ending stocks-to-use ratio of 7.6 percent would be above the 5-year average of 5 percent and the highest in the past 7 years. With a sharp increase in production and ending stocks and lower corn prices, the season-average farm price for soybeans is projected at $10.50 per bushel.






Increased production of corn, even with increased use, will generate large carryover stocks and low market prices.  Increased production of soybeans, even with increased use, will generate large carryover stocks and low market prices.  Production of both corn and soybeans assumes normal weather patterns.


Posted by Stu Ellis on 02/24 at 11:20 PM | Permalink


I wonder if the USDA's not hoping for better weather, but ignoring the drought outlook, which shows much of the corn belt west of the Missouri River in continued drought through at least 31 May 2013. Also, drought tends to reinforce drought, etc. And the USDA was a bit off on their crop forecasts until late in the growing season. They kept insisting that the drought wouldn't hurt crop yields and amounts, then finally had to backtrack. Not sure I'd take their statements at face value.

Posted by: Tom Meyer at February 25, 2013 11:11AM

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