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 it sets the stage for wilder price swings moving forward. "It almost guarantees continued volatility," says Jim Hilker, ag economist at Michigan State University. If anything, volatility through spring could even increase compared to the reasonable calm markets 30 days preceding the report’s release, he adds.
USDA set 2011 corn production at 12.3 billion bushels, down 1% from the October forecast, and down 1% from 2010. Yields based on Nov. 1 conditions are forecast at 146.1 bu./acre, down 1.4 bushels from the October forecast and down 6.1 bushels 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."
Corn futures did not jump following the release of the report, however, largely due to USDA’s projection of weaker soybean exports and market concern over Europe’s debt crisis.
Also released Nov. 9 were USDA’s World Agricultural Supply and Demand estimates, which lowered feed and residual use by 100 million bushels. This is the second biggest surprise in the two reports and is leaving analysts scratching their heads, says Matt Roberts, ag economist at Ohio State University. "There are a lot of questions about this," he notes. Only 30 million bushels more wheat has been fed this year than 2010, so it’s difficult to determine what is being substituted for corn, Roberts adds. USDA justifies the lower feed number as being due 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/bu., unchanged from October. "I wouldn’t be surprised to see corn prices trade in the top end of that range," says Dan O’Brien, ag economist at Kansas State University.
USDA estimates that 2011 soybean production will be 3.05 billion bushels, down slightly from the October forecast and down 9% from last year. Yields are expected to average 41.3 bu./acre, down 0.2 bu. from last month and down 2.2 bushels from 2010. The U.S. season-average soybean price range is projected at $11.60 to $13.60/bu., down 55 cents on both ends of the range from the October forecast.