Courtesy of the farm doc daily site.
Issued by Darrel Good and Scott Irwin, University of Illinois
The corn market will continue to be influenced by an array of factors over the next several months. One of the important price factors in the new year will be the prospective size of the 2013 U.S. crop. Prospective crop size begins with the magnitude of planted acres. Rather than forecast the likely magnitude of those plantings, we pose the question of how many acres are needed?
The answer to the question depends on a number of elements, including:
- The expected level of stocks at the beginning of the 2013-14 marketing year,
- The expected magnitude of consumption during the 2013-14 marketing year,
- The appropriate level of stocks at the end of the 2013-14 marketing year
- The relationship between planted acreage and acreage harvested for grain, and
- The expected average corn yield.
Assessment of the likely or appropriate magnitude of each of these elements varies widely so that there is no single correct answer to the question of needed acreage. As a result, there are a large number of alternative scenarios that could be considered.
Here we consider only one scenario for expected consumption, likely magnitude of stocks at the beginning of the marketing year, and the desired level of stocks at the end of the marketing year. Actual consumption will obviously be influenced by the magnitude of available supplies, the strength of demand, and the price of corn.
The desired or "correct" level of ending stocks also implies some judgment about the appropriate level of the average corn price during the marketing year. We also consider only one scenario for the relationship between planted acreage and acreage harvested for grain.
Based on this one scenario, we estimate the size of the crop needed in 2013 and then examine the acreage implications of three alternative average yield scenarios. In essence, we assume all of the variables for the corn balance sheet for 2013/14 except planted acreage and then back out the planted acres needed under each of the three yield scenarios.
The basic question posed here is the size of the 2013 U.S. corn crop needed to result in a "reasonable" price of corn? The first issue of course is what constitutes a reasonable price. In general, that is a price that results in positive returns for both producers and users of corn.
The most recent year in which those conditions prevailed was 2010-11 when the marketing year average farm price was $5.18 and ending stocks represented 8.6 percent of consumption (Table 1). We consider, then, the crop size needed to result in a marketing year average price near $5.00 and year-ending stocks of 10% of consumption.
The amount of corn consumed next year with an average price of $5.00 depends on the strength of demand. Demand strength, in turn, is determined by a large number of factors that include world and domestic economic conditions, profitability of livestock production domestically and internationally, biofuels policy, and production of competing crops domestically and internationally.
We do not attempt to analyze these factors, but draw on recent consumption levels in various categories to forecast 2013-14 marketing year consumption under the assumption of "reasonable" prices. Consumption is forecast in 4 categories: exports, feed and residual, ethanol and by-products, and other domestic processing.
U.S. corn exports have been highly variable in recent years, ranging from a record 2.437 billion bushels in 2007-08 to 1.543 billion last year. Exports have trended lower and will be very small in the current marketing year due to limited domestic supplies and completion from large Brazilian supplies. We do not anticipate a return to extremely large exports in 2013-14, but a recovery to the 1.8 billion bushel level is anticipated under the scenario of larger supplies and lower prices.