$10 Corn and $20 Soybeans to Pit Food Against Fuel

July 12, 2012 01:10 AM

The average corn yield in the United States this year could drop to as low as 115 bu./acre and the soybean yield could drop below 37 bu./acre unless it starts raining soon and continues to rain hard every week across a wide swath of the central Corn Belt. If yield damage is as extensive or worse then analysts think, corn prices could break through $10/bushel and soybean prices could pierce $20/bushel.

Some of the driest areas of the Corn Belt would need as much as 20 inches of rain to stabilize the corn crop, says Dan Basse, economist and president of AgResource Company, Chicago. Basse was a commentator on a simulcast for the CME Group Tuesday, July 10.

"We are seeing corn plants in the field that are literally dying," says Basse. The plants can’t find soil moisture and are cutting back on kernel formation. "Most farmers in the worst hit areas are fearing 40 to 80% yield losses," he says.

Basse and others are not quite that pessimistic on the national corn crop—at least not yet. "The loss of crop is the largest I’ve ever seen in such a short period of time," says Basse. A 10% overall yield loss would put the U.S. average yield at 141 to 144 bu./acre, which equates to overall production of less than 12 billion bushels.

Corn abandonment: 2 million to 11 million acres

In two previous droughts, yield losses were greater than 10%. Corn yield dropped 30% below trend yield in 1988 and 20% below trend in 1983. A 20% yield decline would put the U.S. average yield between 130 and 132 bu./acre.

"That is a catastrophe," says Basse. On top of the yield loss, Basse expects 2 million to 3 million acres of corn to be abandoned. "We are finding fields in Indiana and Illinois that will yield nothing," he says.

The potential for soybean yield has also dropped dramatically, but plentiful and frequent rains still could still help the soybean crop. U.S. and world soybean stocks, however, are very tight due in part to last year’s drought in South America, and any yield loss would be problematic. "Back-to-back drought in soybean production regions is unprecedented," Basse notes. "Corn and soybean prices will stay at extremely high levels for the next several months."

Basse says that $8-9/bu. corn and $17-19/bu. beans are likely unless the weather pattern changes in time to help Iowa’s crops, and he hasn’t ruled out corn prices above $10/bu. and bean prices higher than $20/bu. if conditions deteriorate much further.

Terry Roggensack, co-owner and founder of the Hightower Report, agrees that the nation’s corn and soybean crops are on the verge of becoming complete catastrophes "Twelve percent of the corn crop across the country is in very poor condition," notes Roggensack, who was also commentator on the CME Group’s simulcast. "Crops rated very poor are those close to being plowed under, and 12% of the crop is the equivalent of 11 million acres."

Recent soil moisture ratings are some of the lowest ever and the temperatures during the corn pollination period were some of the highest ever. "It only takes one of those to cause stress to the corn crop," Roggensack says. "If conditions stabilize we are looking at a 140 bu./acre yield," he says.

The dramatic drop in corn and soybean yields will soon turn into a global food issue. "The markets will not top until we see potential for good rains that can save the soybean crop from a becoming a total disaster and stabilize the corn crop," Roggensack says. Potential average yields between 114 and 140 bu./acre for corn are reasonable using historical studies, he says.

Falling corn and soybean yields will force more feeding of wheat, which could tighten world food supplies further, particularly if a developing El Nino strengthens, causing drought in the Southern Hemisphere’s wheat-growing regions.

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Spell Check

7/12/2012 10:38 AM

  Corn was about 1.40 when I was born In 1949. Need to be at least 12.00 to keep up with inflation. Yes, yields are higher. But not as proportionately as much as seed, fertilizer, machinery, property taxes, etc. You won't read this in the MSM and groups like Farm Bureau never bring it t the public's attention too busy selling seed and fertilizer and pushing for more cheap labor for certain mega ag businesses that want more illegals.

7/12/2012 01:20 PM

  Keeping up with inflation indeed. I was listening to Mn Public Radio a while back and they were talking how the high farm prices were impacting the food prices. I thought I would see how he could make such a statement and asked him about the price of a loaf of bread. What should the farmer make off that loaf that was about $2.79 at the time and Wheat was around $6.00. I asked him how many 1 Lb loaves of bread were in a bushel. He, of course, did not know. So I asked him how much the wheat cost for that 1 Lb loaf, again he didn't know. When I mentioned that it was only a dime, he thought I was lying to him. So I did the math for him and mentioned that a bushel was 60 pounds and and each loaf would take really close to a pound. At that rate, he finally admitted that I was correct. I then asked him if that dime was too much for the farmer in each loaf? He kind of stuttered around for awhile and said he would look into my figures more closely. The next time someone mentions farmers are driving up the price of food, feel free to relate this story to them. Most cereals have the box costing more than the grain inside. How much oats in a box of Cheerios? Wheat and corn chex have how much going to the farmer per box? And then have them explain how this is too much. Giving them the grain would only drop the price by pennies!!!!! 50% chance of rain tonight. I hope the rest get rain soon. We might be getting dry but most of the farmers have it much worse than we do. My heart goes out to you.

7/12/2012 02:16 PM

  @FG...boy you hit the nail square on the head..while I do not grow corn I do raise poultry..same issues...everyone making it off our backs. Take these huge agbusiness associates and put them on a spaceship to Venus..then do the same with the farmers but send it to Mars...who do you think NASA would come pick up first???..


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