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High Corn, Soybean Prices to Slash Demand

August 10, 2012
USDA corn sunset
  

USDA agrees with trade analysts' estimates: Drought has slashed the U.S. corn and soybean crops and strong prices will force domestic and export demand to shrink in the coming year.

"We're clearly going to be in the position where we are going to need big crops in the next year," said Peter Georgantones, account executive at Roy E. Abbott Futures, Inc. "We don't want to see low carryout and drought. That's what we have this year," he said in a MGEX conference call after USDA issued production and supply-demand reports.

Corn futures traded a few cents higher after the report but slipped into negative territory. Soybean futures lost part of their early gains, but stayed higher in the morning.

This year's average corn yield likely will be the lowest since 1995 and the crop will be the smallest since 2006, said USDA. The department projects corn supplies for 2012-13 will fall to a nine-year low and high prices will ration those tight supplies. Total use likely will drop to a six-year low on sharp declines in feed and ethanol demand.

U.S. soybean supplies for 2012-13 are headed toward a nine-year low, forcing exports and crush to drop as season-average projected soybean and produce prices climb to record highs.

"Any way you cut it, we have a massive rationing job ahead of us in soybeans," said Georgantones. "We'll be virtually out of beans."

Corn Acres, Yields Drop

Here are the key USDA numbers for this year's corn crop and balance sheet:

  • Harvested area is down 2.5 million acres from last month's estimate to 87.4 million acres, still up from 84 million last year.
  • Projected yield of 123.4 bu. per acre is down from 146 bu. projected last month, 166 bu. projected early this year, and 147.2 bu. last year. Trade estimates centered on 126 to 127 bu., but ranged from about 118 to 134 bu.
  • The crop of 10.78 billion bushels is down from last month's protection of nearly 13 billion and the 2011 crop of 12.36 billion. USDA's projection is slightly below the average trade estimates of about 11 billion bushels, but well within the range of estimates.
  • Feed and residual use in 2012-13 likely will drop to 4.075 billion bushels, down from 4.55 billion estimated this season and 4.79 billion in 2010-11. "We're going to be liquidating animals," said Georgantones. "No one in the country is feeding animals at a profit." He expects cuts in production of hogs, chickens, and turkeys, but doesn't expect USDA's projected corn feeding number to get smaller.
  • Exports are projected to fall to 1.3 billion bushels, compared with the estimated 1.55 billion this year and 1.83 billion in 1010-11.

 

Soybean Crop Prospects Down
 

Soybean crop prospects may be improving slightly this week in response to rain, said Georgantones, but he still sees a lengthy recovery for U.S. and global supplies.

"They'll need to plant a lot of beans in South America to replenish this," he said. "It's going to take a couple of years to get stocks back up."

These are figures from USDA's reports:

  • Harvested acreage likely will fall to 74.6 million acres, off from 75.3 million estimated last month but up from 73.6 million last year.
  • Projected average yield of 36.1 bu. per acre is down from 40.5 bu. projected last month and 41.5 harvested last year. USDA's estimate is lower than the average analyst estimate of about 37 bu., but within the trade estimate range of 32 to 39 bu.
  • Production of 2.69 billion bushels would be down from 3.06 billion bushels last year and 3.33 billion in 2010. The average trade estimate was nearly 2.8 billion.
  • Projected crush of 1.515 billion bushels would be down from 1.69 billion this year and 1.65 billion in 2010-11.
  • Exports, projected at 1.11 billion bushels, would be down from 1.35 billion last year and 1.5 billion in 2010-11.
  • USDA's projected ending stocks of 115 million bushels next season matches the average trade estimate, but is down from 145 million expected at the end of this month and 215 million last year.

 

Wheat May Limit Corn Prices

USDA projects a season-average corn price of $7.50 to $8.90/bu. for 2012-13, up from about $6.25 this year and $5.18 last year. The projected 2012-13 average soybean price of $15 to $17/bu. would be up from $12.45 in 2011-12 and $11.30 in 2010-11.

Georgantones said he expects wheat feeding may reach 250 million to 300 million bushels, providing some pressure on corn prices. USDA projects 2012-13 wheat prices will average $7.60 to $9/bu., compared with $7.24 in 2011-12 and $5.70 in 2010-11.

USDA raised its estimate of 2012-13 wheat feeding to 220 million bushels, up from 200 million last month and 163 million in 2011-12.

"This wheat feeding program has been going on for the past year," he said. If the U.S. wheat crop had not been large, corn prices could be up to $9.50 or $10/bu., said Georgantones.

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Coverage, Analysis of the Aug. 10 Reports
See all of the data, coverage and analysis of today's World Agricultural Supply and Demand Estimates and Crop Production reports.

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COMMENTS (1 Comments)

Bob Milligan -
It is very important to be much clearer about the use of the work "demand." Demand in economic terms is not a single quantity. It is the relationship - usually estimated as a straight line - between supply and demand. When the supply - in this case the corn crop - changes, it creates a movement along the demand relationship resulting in a higher price. This is expected and it is not a change in demand. The problem is that with a large price increase - as expected with corn - there well could also be a change in demand. Foreign buyers of our exports could locate new markets and not return to buying from us. Food processors could find alternative products and not return to buying corn. Livestock producers could reduce inventory and would not puchase as much corn even if the price returned to the lower level. All three of these possibilities would create a change in "demand." The demand line would shift such that a lower price would result for the same quantity available. In summary, it is crucial in writing about demand that it be clear whether the discussion is about a quantity demand on the demand curve or a change in demand meaning the relationship changes.
7:00 PM Aug 11th
 



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