The corn demand recovery USDA projected at last month’s annual Outlook Conference may be overly optimistic, in the view of Chad Hart, ag economist at Iowa State University. Overall, USDA projects total corn demand of 13 billion bushels, driven by a rise in food, seed and other uses by 50 million bushels, a rise in corn exports by 600 million bushels, a jump of feed and residual use by 950 million bushels, and growth in ethanol use, although corn usage for ethanol is still expected to remain below the level of 2011.
Hart thinks USDA’s demand numbers are not likely to materialize, with his biggest concern in the feed and residual category. Assuming trend yields, ending corn stocks for 2013/14 could grow dramatically to over 2 billion bushels. Corn prices, under this scenario, would drop below $5/bu., Hart predicts.
Given projected production costs for the 2013 corn crop, the marketing year looks profitable assuming trend yields, but margins are likely to be much smaller than producers have captured over the past three years. "In this respect, the 2013 corn crop year is reminiscent of 2009," Hart adds. With normal yields, corn production would leap to an estimated 14.5 billion bushels, a new production record, and supplies could recover with one good crop year.
Soybean export demand is projected to hit 1.5 billion bushels again, which would be the most exported since the 2010 crop year. "In fact, the 2010 crop year is the closest comparable to the projections for 2013 in terms of acreage, demand, ending stocks and prices," Hart says. For the 2013 crop year overall, supplies exceed demand and ending stocks build with normal yields, he adds. "That combination points to lower prices," he notes. USDA’s early projection is $10.50/bu., which would be roughly 50 cents below Iowa State University’s projected costs. "Based on these projections, soybean profit margins would disappear."
Hart notes, however, that current futures prices offer more positive margins for both crops. Some of those are originating from ongoing acreage bidding in the markets, but most of the margins are derived from concerns about the lingering drought and low soil moisture conditions. That would prevent as large a buildup in stocks as USDA projects due to the below trendline yields that many analysts predict for the coming year, he says. Futures markets show season-average crop prices of the $5.25 range for corn and $12 for soybeans. These prices offer about a 75 cent per bushel margin for corn and $1 margin for soybeans.