Reaction to yesterday’s “World Agricultural Supply and Demand Estimates” (WASDE) report from USDA’s World Agricultural Outlook Board was more than usual as the projected 2013 supply and demand numbers for various commodities were issued for the first time. For example, the expected large increase in this year’s corn crop driven by a record yield of 166.0 bushels per acre was a topic of keen interest.

Dr. Chris Hurt, Purdue University agricultural economist, reported that the abundance of corn and lack of soybeans has caused a stir in futures markets that could have farmers reconsidering their planting decisions.  New crop corn prices have been declining since March, while soybean prices have risen about 70 cents per bushel.  “Grain markets have been asking for more soybean acres, and that request turned into a plea with the latest USDA updates,” Hurt said.  “Markets are now in their last-gasp effort to convince farmers to plant more acres of soybeans and fewer corn and spring wheat acres,” he added.

The changes in market prices have led to a shift in anticipated crop returns.  For example, Purdue crop budgets on March 1 projected returns of $48 per acre higher on corn than soybeans planted on average quality Indiana land.  By April 10, the budgets were projecting a $25-per-acre higher return on soybeans than corn.  After the May 10 reports, the price advantage for soybeans had surged to $78 per acre.  Market prices show that there are too many corn and spring wheat acres and not enough soybean acres, something, Hurt said, some farmers still can take advantage of by shifting to soybeans.

Many eastern Corn Belt farmers are nearly done with corn planting, but some might be able to shift small acreage, he said. “The greatest acreage-shifting opportunity lies in the Western Corn Belt where corn planting is not as far along. This is especially true in Wisconsin, Iowa, and the Dakotas,” Hurt indicated.  Farmers also have the opportunity to plant double-crop soybeans after they harvest winter wheat, especially since wheat harvest looks to be a couple of weeks ahead of schedule.  In 2011, there were about 4.5 million acres of double-crop soybeans in the United States.   Hurt said that number this year could increase to 6 million to 6.5 million acres.  “In some form, the market would like to see 2-3 million acres shifted out of corn and spring wheat into soybeans,” he said. “Knowing that farmers follow economic incentives and that the economic incentives for soybeans have sharply increased since the USDA last surveyed farmers, it is certainly possible to see that magnitude of acreage shifts when USDA releases their next acreage update on June 29,” Hurt explained.

University of Illinois agricultural economist Dr. Darrel Good noted USDA’s predicted corn yield is “very aggressive,”  and he questions why the 2011 corn yield was not included in the trend analysis of yields.  At the same, Good sees USDA’s projection for corn usage during 2011-12 and 2012-13 continuing to “appear inconsistent.”  Feed and residual corn use looks understated for the current year and overstated for next year, he added.  Nonetheless, Good tends to agree that a build-up of corn stocks is likely and corn prices will continue to moderate to the levels experienced in 2007-08 through 2009-10.

Today’s “Daily Livestock Report” (DLR) also questioned the projected corn yield of 166.0 bushels per acre and said the WASDE report was “quite aggressive” in its estimates for the new corn corp.  With planting progress well ahead of schedule so far this year and weather forecasts indicating that the La Nina weather pattern is coming to an end, USDA now expects above trend yields this coming fall. Some analysts continue to wonder, however, how realistic this assumption is, the DLR said. The sharp expansion in corn plantings has brought more marginal and lower yielding acres into the mix.  While U.S. farmers have approached current yield estimates in the past, indeed yields were 165 bushels per acre in 2009-10, that yield was from planting 86.4 million acres, compared with 95.9 million acres this year. It would appear that for current yield estimates to materialize, “a lot of things need to be just right for this year’s corn crop,” the report noted.

Increasing the projected ending stocks for the old crop corn runs counter to most analysts estimates who were expecting old crop ending stocks at around 750 million bushels, compared to the 851 million bushels that USDA reported. USDA reduced feed consumption estimates for this summer as more wheat is currently going into livestock and poultry feed.  USDA also did not change its estimates for U.S. corn exports despite much trade talk of the large shipments to China and other destinations.

Demand estimates for the new crop were “equally interesting and different” from what private analysts were contemplating ahead of the report, DLR said. USDA sharply increased U.S. corn feeding estimates in the new crop year, projecting feed and residual use at 5.450 billion bushels, about 900 million bushels or 13.7 percent higher than a year ago. This feeding level would imply a notable decline in wheat feeding, as corn and wheat spreads widen and also expansion in livestock and poultry numbers. With the calf crop declining in the next year, cattle feed demand will remain limited and likely will contract. Some hog expansion is expected but, based on current farrowing estimates into year end, it is unlikely there will be more than a 1 percent increase in hog numbers at least through first quarter of next year.  There are some indications that broiler supplies will recover by the fourth quarter of 2012, DLR said.  Some analysts expect the feed estimates overstate the case for demand next year.  They also believe the current USDA export estimate may be on the low side, especially if Chinese corn producers fail to produce another record crop. A potential increase in corn exports could offset lower feed numbers, DLR concluded.

 

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