The final 2014 USDA Crop Production report, published in January each year, is the agency’s final attempt to reconcile all crop data. It pretty much sets production in stone and provides the first estimate for winter wheat. At times, the report has proven to be a watershed moment for grain pricing. January 2015 proved to be one of those times.
USDA revised downward planted acres for corn to 90.6 million and for soybeans to 83.7 million. Corn yield fell 2 bu. to 171 bu. per acre. This compares to The Gulke Group’s March 2014 estimates of 90.5 million acres and 83.5 million acres respectively and our August 2014 revised corn yield of 170.75 bu. per acre.
Dig Into The Numbers. For corn, both ending stocks and total usage were reduced slightly. Prices have seen a strong rebound since the fall lows that occurred around Oct. 1. As of January 2015, corn had rallied $1 per bushel as farmers shut the bin doors, forcing previously negative commodity trading advisers (CTAs) and short-bought speculators out of their short futures positions.
Because the final numbers have been set, any hope of still smaller crops is over. The corn carryover of 1.877 billion bushels is still 500 million bushels too high to print new highs for 2015.
Soybean demand increased 11 million bushels, offsetting an equal increase in supply and leaving carryout at 410 million bushels—about 250 million bushels too high to support a long-term bullish scenario, barring a problem in South America.
The upshot is the U.S. has enough excess to offset a reasonable drop in South America’s total soybean and corn production. The corn excess of 1.877 billion bushels says that even with excellent ethanol production, steady exports and reasonable feed usage within 100 million bushels, there will still be a Goldilocks type of situation. That leaves sufficient stocks to satisfy reasonably good demand with a cushion for a supply problem in 2015. Yet given the exploding value of the U.S. dollar, odds are that demand could be overstated.
These Factors Will Decide Prices. At press time, corn had retreated 30¢, soybeans 50¢ and wheat 30¢. Harvest delivery prices for 2015 fell in unison. The price outlook is now acreage- and yield-dependent. The Gulke Group will conduct its client survey of intended crop acreages in March, and USDA will offer its ideas at its Annual Outlook Meeting in February.
Conventional wisdom holds there will be a reduction of about 2.6 million acres of corn planted for 2015, land that might go to soybeans. Winter wheat fell 2.2 million acres. Acres will likely go to non-GMO sorghum for China in the southern belt and spring wheat in the northern Plains.
Corn of 88 million acres (81.2 million acres harvested), at a trendline yield of 165.5 bu. per acre, yields a 13.44-billion-bushel crop. That’s about equal to this year’s usage and suggests little change in carryover for the 2015/16 crop. Soybean acres will rise; the question is by how much.
U.S. producers must resist the urge to plant more total acres than last year. Betting that some other state will cave in and drop corn acres while you or I decide to capitalize by planting more is a recipe for price depreciation to 2014 fall lows. This would set the stage for a situation similar to 2008/09, when producers saw a long lower-priced, base-building phase and waited for demand to rise, drought to emerge or competitor nations to become insolvent. All are possible.