Despite Spring Flooding, Late Start USDA Sees Strong Finish For Corn

By Jane Fyksen Crops Editor
Thursday, October 16, 2008 7:34 AM CDT

Last week’s USDA report reestablished U.S. farmers as the most productive in the world. After a dismal start to the crop year that included severe flooding through the very heart of the Corn Belt, USDA revised its 2008 yield estimate to 154 bushels per acre. If realized, this year’s national-average yield would be the second highest on record, only lagging the 160 bushels harvested on average in the U.S. in 2004.

The 1.1 percent increase in yield from USDA’s September prediction helped push this year’s corn production estimate up to 12.2 billion bushels n 128 million more than what government analysts were predicting a month ago.

Planted acreage of corn is now estimated at 86.909, 68,000 less than the previous estimate, while area harvested for grain is estimated at 79,197 million acres, 93,000 below the September forecast.

USDA also increased estimated carryover from the 2007 crop by 48 million bushels. The combination of higher yield and larger carryout from 2007 resulted in USDA’s total corn supply estimate rising to 13.839 billion bushels, up 1.3 percent compared to a month earlier.

Kansas State University ag economist James Mintert points out that USDA also adjusted several projected 2008/2009 corn usage categories. “In particular, the projected usage of corn for ethanol production was revised downward by 100 million bushels to four billion bushels,” he says. “The downward revision in USDA’s ethanol category reflects the slowdown in new plant construction that’s been apparent for some time, but still leaves USDA’s projection for corn going into ethanol production somewhat above estimates by many private sector analysts.”

The government also revamped its projected use of corn for feed to 5.35 billion bushels, compared to 5.2 billion bushels last month. “Implicit in USDA’s forecast is the expectation that lower corn prices will slow the rate of livestock herd liquidation, thereby supporting feed usage,” says Mintert.

USDA projected ethanol corn use lower because of reduced gasoline consumption. On the other hand, feed and residual use was raised on larger supplies, reduced availability of distillers grains, and sharply lower prices.

USDA left its corn export forecast of two billion bushels unchanged from last month, despite some expectations that economic weakness around the world would discourage exports in the year ahead.

“The end result of USDA’s larger supply estimate and modest expected increase in corn usage is that estimated carryover stocks in late summer 2009, before the 2009 harvest begins, are 136 million bushels larger than projected a month ago,” Mintert highlights. “As a result of the expected carryover increase, and recent price weakness, USDA lowered its estimated 2008/2009 average farm price range to $4.20 to $5.20 per bushel compared to an estimated range of $5 to $6 on the September report.”

“Although corn futures prices traded limit down following the report’s release (Oct. 10), it’s not clear how much of the decline was actually stimulated by expectations of larger corn supplies versus ongoing concerns about weakening global economic conditions,” says Mintert.

“Focusing just on USDA’s supply and demand estimates, two key points should not be overlooked,” he tells producers. “First, USDA still projects that corn usage this year will exceed production by nearly 500 million bushels. Second, if usage winds up near USDA’s estimates, the corn carryover from the 2008 to the 2009 marketing year will be just 9 percent of estimated corn usage, signaling that corn supplies are expected to remain very tight by historical standards.”

With the supply side of the corn and soybean price equation becoming more settled, price direction will now come primarily from the demand side, where there are some positive developments, says University of Illinois marketing specialist Darrel Good.

"Export sales for the week ended Oct. 2 were relatively large and well above the weekly pace needed to reach the USDA projections for the year," notes Good. "Feed prices are now low enough that livestock feeding margins are generally profitable. Ethanol production margins exceed operating costs, and low prices will not encourage a large supply response in the southern hemisphere.”

"It appears that value now exceeds the price of corn and soybeans. For those prices to stabilize and/or rebound, confidence in the financial markets will have to be demonstrated," Good states.

Corn and soybean prices have been pummeled by negative fundamental news since early September. In addition to larger production forecasts, crop prices have continued to be pressured by declining stock prices and energy prices that threaten demand prospects. "In late June, we were asking if the highs were near, now the question is whether the lows are near," he observes.

For soybeans, last week’s USDA report contains a 2008 production forecast of 2.983 billion bushels - 49 million larger than the government’s September forecast and 63 million larger than the average pre-report guess. Last week’s estimate was up two percent from the September forecast and up 11 percent from last year. If realized, this will be the fourth largest soybean production on record.

Forecasted U.S. average yield, at 39.5 bushels, was 0.5 bushels below the September forecast. "That forecast is 2.2 bushels below the 2007 average and would be the lowest average yield in five years,” says Good of this year’s bean crop.

"The larger crop forecast was the result of a larger acreage estimate. At 76.983 million, planted acreage is 2.2 million above the previous estimate. The harvested acreage forecast of 75.479 is 2.138 million above the September forecast," the Illinois analyst details.

In the USDA's revised supply and demand projections, the larger crop forecast was partially offset with a 36-million-bushel increase in projected use during the current marketing year. Year-ending stocks are now projected at 220 million bushels. Based on current projections, an increase in U.S. soybean acreage will not be required in 2009, says Good.

If the 2009 yield is near 42.5 bushels, harvested acreage at this year's level would result in a crop of 3.208 billion bushels.

"If year ending stocks can be reduced to about 125 million bushels, then 3.31 billion bushels would be available for consumption during the 2009-10 marketing year," Good continues. "That would be 335 million above projected use for the current year and 237 million above the record consumption of 2006-07. If the 2009 South American crop lives up to current expectations, world supplies would likely be sufficient with a 2 to 3 million-acre reduction in U.S. acreage in 2009."

Good also examines the consumption side of the equation for corn. USDA increased projected use during the current marketing year by 40 million bushels. The projection of feed use was increased by 150 million bushels and the forecast of processing uses of corn was reduced by 110 million. "Most of that reduction, 100 million bushels, was in the ethanol category," he points out. "Year-ending stocks are projected at 1.154 billion bushels, 136 million above the September forecast. The projected level of year ending stocks is relatively small and would force a reduction in use during the 2009-10 marketing year unless production is increased in 2009."

With a 2009 yield near trend value of about 153 bushels, it appears that corn acreage needs to expand by 3 to 4 million acres in 2009.

"Most of that can come from a reduction in soybean acreage," he says. "In addition, reduced acreage of soft red winter wheat may free some acreage for corn planting in 2009.

"The major implication, then, of the October corn and soybean production forecasts is that there may not need to be much of an acreage battle in 2009. However, corn prices will have to be high enough in relation to soybean prices to motivate a modest acreage shift."

Some private analysts feel commodity prices will stabilize and creep up into 2009, due to capital being infused into the world economy.

The U.S. is more than able to continue supplying global customers with the necessary grains, according to the U.S. Grains Council, the leading organization for export market development for barley, corn, sorghum and co-products. USGC President and CEO Ken Hobbie says such news should serve as reassurance to global customers who rely on the U.S. to meet their food and feed demands.

“With the production of all three commodities of corn, sorghum and barley, as well as their co-products up from the previous forecast, our international customers can be assured that U.S. producers have substantial supplies to support their needs,” Hobbie states. “U.S. farmers should be recognized for the hard work they have done to ensure the United States remains a competitive world supplier of grains.”

For Wisconsin, USDA raised the corn-for-grain yield two bushels to 139 on average, but with fewer acres, the projected 2008 harvest is 417 million bushels, compared to 442.8 million last year.

As for Wisconsin soybeans, state-average yield was revised downward two bushels, to 36. With more acres this year compared to last, Wisconsin’s soybean harvest is projected at 57.6 million bushels, versus 55.89 million last year.

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