All predictions point to corn remaining king of crops at least for the foreseeable future, says Todd Davis, senior economist with the American Farm Bureau.
“It’s looking like corn will remain king — and that’s OK because it has been a rising tide that has lifted the soybean and wheat boats, and for a couple of years it also helped cotton and peanuts. So, it has been a very good time for the crop sector of the U.S. agricultural economy.”
While it will be some time before the long-term effects of the 2012 drought are fully played out, it appears likely continued strong worldwide demand for corn and soybeans will lead to higher projected prices, he says, and while corn will drive the markets, soybeans will provide some competition.
Looking back over the past corn production year, Davis says farmers enjoyed last winter because it wasn’t very cold, and there wasn’t a lot of snow, so it gave them the opportunity to get out and start planting.
“We had about 50 percent of the corn crop planted by the end of April, a good couple of weeks ahead of 2011, and a week ahead of the 2006-2010 average. We were off to a great start, with a lot of good anticipation for the corn crop.”
But Iowa and parts of the eastern Corn Belt started off the season with dry weather conditions.
“Jumping forward to July, when half of the crop was going through pollination, we were also getting blasted by 100 degree temperatures. The heart of the drought started in lower Indiana and some in Illinois and western Kentucky, and according to NOAA, we’d need in excess of 12 inches of rain to bring those soils back to normal. It has spread into Nebraska, Iowa and Arkansas. As corn was coming into the dough stage, drought stress really began to take hold.” As of Sept. 24, about 40 percent of the corn crop was harvested, which was a good two weeks ahead of schedule, says Davis, and that was knocking some grain elevators back on their heels.
“A hurricane provided relief to the Southeast, but we still have dry soils in Iowa, Nebraska and the Plains, which could have some effect on the winter wheat crop. We need rainfall to recharge these soils.”
Looking at the balance sheet, because of good spring weather and robust prices, producers were able to plant 96.4 million acres of corn, up 4.5 million from last year. Planted acres were the largest since 1944, according to Davis.
“We’re looking at harvesting 87.4 million acres, up 3.4 million from last year. If we achieve this, it’ll be the largest amount of corn acreage we’ve harvested since 2007. USDA currently has abandonment at only 9.3 percent, which is small considering the widespread drought.”
USDA is projecting the average corn yield at 122.8 bushels per acre, down 24.4 from last year. “Last year’s yield was down 5.6 from the previous year, and 2010 was down 12 bushels from 2009. We see a trend, and it’s not going in the right direction,” says Davis.
Carry-in stocks are estimated at 1.18 billion bushels, the lowest level since 2004-2005, while USDA estimates production at 10.7 billion bushels.
“Imports will be up, but as a country, we’re exporters by nature. We’re very efficient at pushing this stuff out the door, but we’re not as efficient in unloading these large vessels and barging it up the river,” says Davis.
The U.S. will be at the lowest level for feed use since 1988-89, and exports will be the lowest since 1985-86, he says.
“That’s what you get when you have demand rationing. If you don’t have the corn, then you can’t export it.”
As of September, corn ending stocks for the marketing year were pegged slightly higher compared to USDA’s August estimate, at 733 million bushels, which represents 24 days of supply. The projected range for the corn season-average farm price is pegged at $7.20 to $8.60 per bushel.
“If a midpoint of $7.90 is achieved, it’ll be a record, up $1.65 from the old crop marketing year,” says Davis.
The stocks-to-use ratio is 6.5 percent, he says, with 5 percent considered the pipeline minimum. “So there’s not a lot of cushion there for further reductions in production with this crop. The 2011-2012 crop had a beginning balance sheet of 1.1 billion bushels, and we had to do supply rationing with that crop. We’ve been in a rationing mode for the last couple of years. The concern is that once we get our stocks built up, how long will it take for this demand to recover?”
In the 2011-12 marketing year, feed and exports took the brunt of the reduction, and ethanol was barely scathed, down by about 21 million bushels, he says. This year, because of the very small crop, USDA is projecting ethanol demand to be reduced by 5 to 10 million bushels from the previous year.
“Prior to 2006, planted corn acreage was 77 to 79 million, and then we had the big increase related to the growth in demand on the renewable fuel side. We’re pushing the Corn Belt up into the Dakotas and down into Kansas, into production land with lower-than-average trend yields. We’re getting marginal land into corn production.”
According to the 20-year corn yield trend, the U.S. has been below trend for six of the last seven years, says Davis.
“It makes sense because we’re adding a lot of new land. Last year, we were a little below 9 percent from trend, and in 2010, about 5 percent below trend. The South had fairly good corn yields, if your expectation is trend. In the Southern region, if you have a crop, you have great prices to take advantage of.”
China continues to be an aggressive buyer of feeds, says Davis, and USDA is projecting China to import nearly 750 million bushels of corn.
“Corn stocks will be very tight, and we’re looking at stocks-to-use below 6 percent. On a global basis, corn stocks have declined from the previous year, and on a stocks-to-use basis, we’re at some of the tightest levels we’ve ever seen. We just don’t have a lot of cushion in the balance sheet to withstand further production cuts.”
Looking ahead to next year, if U.S. producers increase corn acres and make a good yield, there is the potential for building stocks, lowering the price, and having the traditional margin squeeze that hasn’t been experienced in corn production in about five years, says Davis.
On the other hand, continuing drought conditions could keep stocks relatively tight, he adds.
“All eyes are on South America as spring begins,” says Davis. “Weather remains a major factor for crops in both North and South America.”