Economist: Is the Corn Market Too Complacent About Planting Delays?

May 19, 2009 07:00 PM

While it's too early to forecast the size of the 2009 U.S. corn crop, the market appears to be ignoring the potential yield reduction due to delayed planting in the eastern Corn Belt.
"The USDA's Crop Progress report showed only 48 percent of the crop planted as of May 10 -- equal to last year's slow pace and below the 5-year average of 71 percent," said Darrel Good, U of I Extension economist. "So far the corn market has had only a modest reaction to these planting delays."
December 2009 corn futures prices are a bit lower than in early April and only about $.50 above the low of the past four months.
The very measured response to slow planting progress may reflect the market's focus on other pricing factors.
"However, the anticipation of a rebound in U.S. corn exports and another substantial increase in ethanol use of corn during the year ahead, along with a more stable stock market and rising gasoline prices, should all be supportive for corn prices," said Good.
He says the market may be remembering 2008 when the effects of some planting delays and some replanting were offset by very favorable weather in July, resulting in an above-trend U.S. average yield. In addition, planting delays this year are not as widespread as last year.
Delays are severe in Missouri, North Dakota, and much of the eastern Corn Belt, but planting has been rapid in the large corn-producing states of Iowa, Minnesota, and Nebraska.
"Yet the market may be underestimating the potential yield implications of extremely late planting in the eastern Corn Belt. It appears, for example, that the percentage of the Illinois crop planted "late” this year will be the largest in at least 50 years," said Good.
The yield effect of late corn planting is well documented in agronomic research, but typically the percentage of the crop planted late is low enough to have only a small impact on the state average yield. That may not be the case this year.
The U of I corn yield model (linked below) estimates state average corn yield based on a function of time (trend), percent of the crop planted late, total precipitation from September through March before planting, April precipitation, and monthly precipitation and average temperature for June, July, and August. The model explains about 96 percent of the annual variation in the Illinois average corn yield from 1960 through 2008.
If all of these variables were at average levels for 2009, including the portion of the crop planted late (14 percent), the model would project the state average yield at 175 bushels.  This compares to the unadjusted trend yield, based on actual yields since 1960, of 163 bushels.  The forecast based on average weather is higher than the unadjusted trend because yields in poor weather years are reduced more than yields are increased in good weather years.
The model can be used to forecast the 2009 Illinois average yield based on actual precipitation from September 2008 through April 2009, the assumption of average weather for June through August, and the percent of the crop likely to be planted after May 20.
"With only 10 percent planted as of May 10 and a small window of opportunity for planting last week, it appears that a large percentage of the crop will be planted after May 20. Assuming 75 percent is planted late, the model forecasts a state average yield of 157.4 bushels per acre, almost 22 bushels below the 2008 yield," said Good.
These results might be applied to Indiana and Ohio as well as Illinois. These three states account for 25 percent of intended corn acreage this year.
"Each 1 percent change in the percent of the crop planted after May 20 changes the yield forecast from our model by about 0.3 bushels per acre. The yield penalty could be larger if a substantial portion of the crop is planted after May 30.
"A generally drier forecast for the remainder of the month, however, suggests planting could be completed by month's end," said Good.
He says actual summer weather could offset part of the yield impact of late planting or could contribute to further declines in yield potential.
"The 2009 yield forecast is 172.6 bushels per acre assuming 75 percent of the crop is planted late, July and August precipitation one standard deviation above average, and July and August temperatures one standard deviation below average," said Good.
"Conversely, the 2009 yield forecast is 134.5 bushels assuming precipitation one standard deviation below average, and temperatures one standard deviation above average," he said.
For More Information
This news release was provided by the University of Illinois College of Agricultural, Consumer and Environmental Sciences.

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