USDA’s lowering of this year’s corn yield and production in its Nov. 9 Crop Production report not only is bullish for prices but sets the stage for wilder price swings moving forward. "It almost guarantees continued volatility," says Jim Hilker, an ag economist at Michigan State University.
In the report, USDA set 2011 corn production at 12.3 billion bushels, down 1% from the October forecast and also down 1% from 2010. Yields based on Nov. 1 conditions are forecast at 146.1 bu. per acre, down 1.4 bu. from the October forecast and down 6.1 bu. from 2010.
"I didn’t expect to see such a large corn drop," says Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri. "Additional news of supply cutbacks or increases in demand could result in sharply higher prices."
Feed Use Lower. Also released on Nov. 9 was USDA’s World Agricultural Supply and Demand Estimates report, which lowered feed and residual use by 100 million bushels. This was the second biggest surprise and left analysts scratching their heads, says Matt Roberts, an Ohio State University economist.
"There are a lot of questions about this," he notes. Only 30 million bushels more wheat has been fed this year than in 2010, so it’s difficult to determine what is being substituted for corn, Roberts adds. USDA justifies the lower feed number by pointing to the smaller crop and further reductions in the outlook for broiler production.
The department forecasts a season-average farm price of $6.20 to $7.20 per bushel, unchanged from October. "I wouldn’t be surprised to see corn prices trade in the top end of that range," says Dan O’Brien, an ag economist at Kansas State University.