Corn and soybean yield and production projections for this year were decreased as the U.S. Corn Belt continues to suffer through the worst drought since at least 1956. In USDA’s “World Agricultural Supply and Demand Estimates” (WASDE) report this week the 2012 corn crop is estimated at 10.7 billion bushels, down about 1 percent from the August report and 13 percent under 2011. This harvest will be the smallest corn crop since 2006. However, a number of analysts predicted a more significant decrease in the corn yield and crop.
Soybean production for 2012 was forecast at 2.63 billion bushels, down 2 percent from August and down 14 percent from 2011. The soybean projection is slightly less than what a number of market analysts anticipated.
Following this week’s WASDE report, there were a number of comments. Two analysts comments were:
Chris Hurt, Purdue University, Agricultural Economist, said:
While the corn yield projections declined, they didn’t drop as much as expected compared with the August report. The surprise was on the corn market. Corn yields were not dropped very much–about six-tenths of a bushel per acre. What we saw is that in the primary Midwest, especially Illinois, Iowa, and Nebraska, the yields all came down some. But in the southern tier of states, we actually saw an increase in yields, so we kind of had an offset.
Perhaps the biggest surprise in corn numbers was USDA’s estimate of old-crop carryout, which the department raised to 1.181 billion bushels, substantially higher than the trade estimate of 1.014 billion bushels and 160 million bushels higher than last month’s estimate. The drop in old-crop corn demand came primarily from the livestock sector. As the lower-quality, new-crop corn is harvested, it is probably going to be fed right away, and the higher-quality old-crop corn will be stored. The higher old-crop carryout also helped boost new-crop carryout in USDA’s September estimates.
The livestock industry gets just a tiny bit of reprieve in the sense that corn isn’t as desperately short as I think many people thought going into this report. On the other hand, corn prices aren’t going to fade substantially. It’s going to be very difficult for the livestock industry to just hold on as cash flows are probably going to be negative for the most part.
Bill Lapp, President of Advanced Economic Solutions, said:
There remains some uncertainty about the size of the corn corp, but the potential for a sharp reduction (to 10.0 billion bushels lower) from this point forward would appear remote. Further, the move in corn prices (to near $8) appears to be adequate to achieve the reduction in demand currently forecast. Corn futures rapidly rose from $5 to $8, but now appear to be moving into a $7.50-$8.00 range. End-users should take advantage of declines in December futures below $7.50, due primarily to concerns about potential downward revisions in the 2012 corn crop. The rationing of soybean demand appears to rely primarily upon increasing prices of soybeans to a level where China is willing to cancel or defer 200 million bushels of (or more) or soybean imports. The upside price risk for soybean and soymeal futures is significant–potentially toward $19 and $600, respectively.
