Corn and soybean stocks may be growing but average prices for new-crop corn and soybeans could still be headed to all-time highs, according to USDA’s May 11 World Agricultural Supply and Demand Estimates. USDA’s midpoints for the seasonal average new-crop price projections are $6/bu. for corn and $13/bu. for soybeans.
"The main message that USDA gave for old-crop corn is that high prices are limiting demand," says Rich Nelson, director of research with Allendale, Chicago. The department decreased corn exports to an expected 1.9 million bushels. The surprise came on the demand side. "The trade expected the reduction in corn exports to be offset by higher ethanol and feed use, which didn’t happen," says Nelson.
Reduced demand pushed old-crop ending stocks to 730 million bushels, up from USDA’s previous estimate of 675 million bushels and higher than the average trade estimate of 665 million bushels. The projected stocks-to-use ratio remains historically tight at 5.4%.
New-crop yield reduction
Looking at new-crop corn, USDA lowered the average corn yield by 3 bushels per acre to 157.8 bushels based on delayed plantings. "It’s early. It’s hard to say what yields will be," says Chad Hart, agricultural economist with Iowa State University. "In previous years when corn planting has had this sort of delay, we’ve seen a reduction in yield of about 3 to 5 bushels per acre." But not always.
In the 2008-09 crop year, ideal growing-season and harvest conditions followed a planting setback and average corn yields that year came in at above trend levels. "But the odds favor below-trend yields," Hart adds. "There’s a lot of uncertainty out there."
USDA did not change new-crop corn acreage, which remained at 92.2 million acres unchanged from the Prospective Plantings report released in late March. "USDA never lowers acres in the May report," says Nelson. "They will wait until the June 30 acreage report is released."
Nelson says a clear argument could be made that corn acreage will eventually be reduced, due to concern that the one-third of this year’s additional acreage is expected to be planted in northern plains states, where cool, wet weather has delayed planting. Fieldwork in the eastern Corn Belt has also been delayed due to soggy conditions. "Slow planting will occur over the next few weeks," says Nelson. "I would suggest we could see further yield reduction in the coming months."
USDA also decreased new-crop corn exports to 1.8 billion bushels, the lowest export number in 9 years. "The message is other countries will supply the market with corn, or cheaper wheat may displace corn," Nelson notes. In 2008, high corn prices convinced users in the Philippines, Thailand, and Malaysia to replace corn with wheat.
Reduced exports and yields pushed both corn-ending stocks and the stocks-to-use ratio higher. Corn ending stocks of 900 million bushels were increased 100 million bushels and were well above the average trade estimate of 811 million bushels. USDA also raised its projected 2011-12 stocks-to-use ratio to 6.7%.
USDA increased its projected carryout for old-crop soybeans from 140 million bushels to 170 million bushels due to a reduction in exports. "High prices are eroding demand and there is increased competition from the South American Crop," notes Hart.
Looking at average closing futures prices for May 10, the value of new-crop corn was about $6.35, according to Hart’s calculations. The average futures price for new-crop soybeans on May 10 was $13/bu. "We’ll see the markets pull back to match these numbers," Hart says.