The 2013/14 marketing year might set up as a new dawn in agriculture. The number of acres available for production could yield record corn and soybean crops. High prices have spurred global production and clients of yesteryear, such as Russia, Ukraine and other former Soviet Union nations, now compete with the U.S. Additionally, South America promises to produce a record soybean crop.
This means we could see soybean stocks up by 1 billion bushels Sept. 1, 2013 from a year prior. High-priced corn has reduced demand by more than 1.3 billion bushels compared to 2011/12.
With record corn acres and a trendline yield of 160 bu. per acre, we could produce 4 billion bushels more than last year’s drought-reduced crop. Some believe a crop that size would buy back 2 billion bushels of demand. But at what price and how long would it take?
Once our competitors have their factories in place, they won’t quit easily. With corn exports projected to be less than half of last year’s, it will not be a matter who is the lowest-cost producer, but who is the lowest-cost seller that will dominate.
The table below shows different supply and demand scenarios for 2013/14. Two scenarios assume 99.3 million acres planted and 91.9 million acres harvested. With a below-average yield of 125 bu. per acre, we could meet current reduced demand and increase ending stocks. Look back to 2010/11 when yields averaged 152 bu. per acre, production increased 3 billion bushels and carryover for corn was 1.8 billion bushels, even with a reasonable demand increase. Look ahead to 2014/15, it’s visible the building of stocks will plague us until we can regain demand or reduce supply.
Our memory cannot fathom a normal year, but one must be aware of the possibilities. More export
countries means the odds of meeting demand increase. A hiccup in one exporting country can create price shocks. We are no longer an island to ourselves.
Jerry Gulke farms in Illinois and North Dakota and is president of Gulke Group Inc., a market advisory firm with offices at the Chicago Board of Trade. Gulke Group recently published Technical Analysis: Fundamentally Easy. For information, send an e-mail to firstname.lastname@example.org or call (815) 520-4227.
- March 2013