USDA’s Sept. 12 World Agricultural Supply and Demand Estimates (WASDE) didn’t hold many surprises. In fact, corn production and yield estimates were close to analysts’ estimates, but USDA’s reductions in the size of this year’s corn crop are probably not finished yet.
“USDA has a tendency to stair-step the numbers down,” says Ben Parks, risk management consultant for FCStone, Kansas City. “The market is pricing in an average corn yield of 146 to 147 bushels per acre.” USDA’s estimate came in at 148.1 bushels per acre. “I’m not in the camp that says the yield will fall below 145 bushels,” Parks adds. “I’m not willing to go there yet.”
USDA put corn production at 12.5 billion bushels, down 3% from its August forecast and a 417-million-bushel reduction.
USDA also raised its midpoint price projection for corn by 30 cents to $7 per bushel, with a range of $6.50 to $7.50. “I was already at $7, but my fear is I’ll have to revise it a little higher again,” says Chad Hart, agricultural economist with Iowa State University. The main reason Hart expects to push his forecast higher is that USDA did not reduce either planted or harvested acreage.
“Acreage will be as important as yield in next month’s report,” says Parks, who along with Hart expects USDA to revise corn acres lower when it releases its Oct. 12 WASDE report.
Both Hart and Parks doubt either the acreage or yield number—due to low test weights—will look as good next month. “This crop has been through flood, drought, wind damage, and hail,” says Hart. “It hasn’t been hit by frost yet, but that’s coming.”
The National Weather Service was already warning about frost in parts of the northern Corn Belt this week.
USDA’s reduction in corn production was matched by a nearly identical reduction in demand. “USDA cut corn demand across the board,” says Hart. Residual and feed use was cut by about 200 million bushels, while the export and ethanol demand categories saw drops of about 100 million bushels. “Only food demand—corn sweetener—did not get changed,” says Hart.
Parks notes that USDA’s estimated reduction in corn demand has yet to occur. “This is not demand that has been destroyed over the past 30 days,” Parks adds. “This is demand that will be destroyed over the next several months.”
The upcoming Grain Stocks report due out September 30 will give the trade a glimpse into how quickly rationing is occurring. That report will close out the books on the 2010-11 crop as well as give updated carryout numbers for this year’s corn crop. “We are seeing the corn crop shrink,” Hart says. “Every bushel we carry forward is precious.”
Despite a small crop that continues to get smaller amid continued strong demand, Parks thinks corn prices could dip sometime during harvest. Last year, he notes that even during the bull run in corn, prices at harvest dipped 70 to 80 cents before continuing their upward trend.
Next spring, however, as competition for acreage once again kicks in, corn prices could reach $8 per bushel, says Parks.