Stocks of the country’s two largest crops—corn and soybeans—are still historically low, but that’s about to change.
USDA will release its final quarterly Grains Stocks report for the 2012-13 marketing year on Sept. 30. Stocks of the country’s two largest crops—corn and soybeans—are still historically low, but that’s about to change.
Stock Levels to Build
The average trade estimate for corn ending stocks is 681 million bushels, substantially lower than last year’s 989 million bushels. However, the range of estimates is wide, from 552 million bushels to 750 million.
Allendale, a brokerage firm in McHenry, Illi., projects ending stocks of 655 million bushels, which is 1% lower than USDA’s Sept. 12 estimate of 661 million bushels.
Despite such measly ending stocks, some analysts are becoming more pessimistic on corn prices now that the country’s producers are expected to harvest a record-large corn crop of 13.8 billion bushels.
Pat Westhoff, director of the Food and Agricultural Policy and Research Institute (FAPRI), notes that in a recent survey, most producers said they think corn prices in the years ahead would average near $6 per bu. or more.
"We have reason to believe that is on the optimistic side," says Westhoff, the commentator on a CME Group pre-report webcast. It’s worrisome that some people are using expectations of $6-plus corn to make cropland buying decisions, he adds.
Corn yields have been below trend for three consecutive years, a very unusual occurrence, says Westhoff. He expects corn yields to start to return to trend line, and given this year’s record-large crop, the 2013-14 corn carryout is estimated to be near 1.86 billion bushels.
"That is a high stock level," says Westhoff. "It could be hard to sustain current prices."
China to Continue Buying Beans
The average trade estimate for soybean stocks is now 124 million bushels, much lower than last year’s 169 million bushels, and slightly lower than USDA’s Sept. 12 estimate of 125 million bushels. Allendale is more pessimistic on soybean stocks, projecting ending stocks of 112 million bushels. The range of trade estimates falls between 106 million bushels and 155 million.
Next year’s ending stocks of soybeans will not grow as quickly as corn stocks. USDA’s latest projection puts 2013-14 ending stocks of beans at only 150 million bushels.
"China said a long time ago that it doesn’t care about being self sufficient in soybeans," Westhoff notes.
The Longer-Term Outlook
Long term, U.S. crop prices will depend on both world and domestic demand, and while global demand has been growing over the past decade, the growth could slow.
Global per capita consumption of grains and oilseeds was flat from 1980 to 2002. "It was never 2% above or 2% below the average," notes Westhoff.
Since then, global per capita consumption of grains and oilseeds has increased dramatically, and more corn is being used in ethanol. He notes that China has shown tremendous growth in meat and fish consumption over the past decade. Without ethanol and demand from China, Westhoff’s numbers show that world per capita consumption of grains and oilseeds would have remained flat over the past 10 years as well.
If meat and fish consumption in China continues to grow at the same rate, by 2022 per capita consumption would equal the average consumption in wealthy countries.
"It can’t grow at the current pace forever," he says. At some point, China’s appetite for meat and fish will be satisfied.
Demographics are also changing; populations are aging in developed countries, he adds, and as people age, they tend to eat less meat.
FAPRI models do not rule out a return to $3 per bushel corn and do not show prices returning to $7 anytime soon.
"Seven-dollar corn was an aberration," he adds. Without new engines of demand growth, corn prices will be lower.