More corn acreage, bigger yields, and declining prices appear likely for 2012.
"I think there's a real, real chance that there's a three (as the) first number on the wall at the elevator come October," Ohio State University
economist Matt Roberts told an outlook session last month.
However, Colorado State University
ag economist Stephen Koontz maintains that weather still may drive corn prices down to $4 or up to $8 this year.
"We're really sitting in a corn market where what happens with this crop makes the price," he said early this month.
Rich Feltes, analyst at R.J. O'Brien
, said this week that he expects price pressure from rising corn stocks, increased acreage, and a return to trend yields.
"South American weather is the driving factor now," said Feltes. "But sooner or later, that will be discounted and we have to face the reality of substantially larger U.S. feed grain supplies – at least that is what the momentum would suggest."
And Dennis Smith at Archer Financial Services
figures the odds of a third year of below-trend corn yields are very low. He thinks that given prospects for soft feed demand, flat ethanol volume, and sluggish exports, corn prices may be on a downhill slope for months.
"If I'm correct and we fall into place with acreage and decent weather, in spring or early summer you could see corn prices challenge $5 or maybe below $5," said Smith. "So we are looking at strategies to try to get price floor protection close to current levels."
Acreage Projections Climb
Plantings rose last year to 91.9 million acres, and trade talk is up to 94 million acres or more this year. But lower yields took the 2011 crop down 1.1% from 2010 and down 6% from 2009.
Feltes said the trade expects corn plantings to increase 2 million to 4 million acres from last year, and new weather predictions call for favorable spring planting conditions. Whatever corn production may be lost to dry weather in South America will be more than offset by increased U.S. production, he said.
Higher Yields Likely
Feltes figured that corn yields historically reach trend or higher in two out of three years. "You can go to Vegas and make a fortune on those odds," he said.
Roberts said average corn yields lagged trend yields in back-to-back years for the first time since 1980 and the odds don't favor a third year. He offered a mid-line 2012-13 scenario of 94 million planted acres, 86.48 million harvested acres and a trend yield of 161.3 bu./acre. The result: a harvest of 13.9 billion bushels.
"That's a lot of corn," said Roberts. "Now, what to do with it."
Ethanol Demand Flat, Feed Use Slipping
The domestic livestock industry shrank in response to high feed prices. Ethanol production – after demanding 2 million additional acres of corn each year in the past decade – will flatten because the end of the blenders' tax credit and import tariffs is tightening margins enough to stop further expansion, said Roberts. He suggested prospects for harvest prices around $3.90, 2012-13 ending stocks of 1.5 billion bushels, and a season-average price around $4.50.
"This is not a forecast," cautioned Roberts. "But realize this: No one says this is crazy. Everyone has about the same baseline balance sheet going."
"I think the feeding side is what gives," said Koontz. "We'll be short cattle and dairy numbers, and we have to see how hog profits go." He said ethanol demand will depend on crude oil prices. "If oil is over $100, which is likely, there's decent demand for that ethanol product. If you bring oil to $75, it softens a little bit."
Smith at Archer Financial noted that poultry numbers are already down and he expects cattle numbers to decline soon. Hog numbers likely will stay even to slightly higher than last year. "With two of the three down, you have to look for corn demand to be down," he said.
Export Demand Soft
"The world has plenty of feed wheat," said Smith. Chinese buyers are regularly coming to the U.S. corn market, but "if not for them, exports would be really sluggish," he said.
Feltes said China may be a wildcard in the corn outlook, but he minimizes prospects for that country to re-enter the global corn market as a major buyer driving prices higher. Some analysts talk of that possibility as they cite declining corn stock and increasing corn prices in China. However, Feltes – echoing comments from U.S. Grains Council President Thomas Dorr last year – said Chinese officials are well aware of the potential inflationary impact their buying can have on global grain and food markets.
Surprises Still Possible
Feltes keeps the door open for surprises in USDA reports. Ahead of this week's Grain Stocks report, for instance, trade estimates cover a range of 500 million bushels for corn, worth about $1 per bushel, he said.
"I think one has to be a little guarded and just careful about getting too confident about the corn price outlook ahead of this stocks report," he said, adding that USDA also could surprise the trade with stock numbers in March and June.
But he also expects that when USDA unveils its first supply-demand estimates for 2012-13 during its Outlook Forum in late February, the figures will show sizable gains in corn stocks based on higher acreage and a return to trend yields.
"I think the producer will be well served to be using whatever scare rallies we have in corn to price uncommitted old grain and the 2012 crop," said Feltes.
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