Grain prices finished mostly unchanged today with March corn up 1 ¼, March soybeans up 2 ¼, and wheat down ¾.
The USDA released its expected Supply and Demand estimates this morning for 2012-2013 crops. For corn they have production at 14.270 bil bu and carryout at 1.616. They have increased estimated corn usage by 815 million bushels from last year to get that carryout. For soybeans, the USDA has production estimated at 3.250 and carryout at 205. Now that the corn-soybean ratio reached the 2.30-1 level, it isn’t so clear where the acres will go when we get the planting intentions report at the end of next month. The market has done its job trying to predict a large gain in corn acres as seen in the chart below.
At this point it still looks like we may have too many acres of everything for next year to keep prices at current levels. Beans could get up to 76 million acres and corn is still looking at getting between 94-95 million acres. The USDA is guessing 75 mil for beans and 94 mil for corn. The 24 year trendline yield for corn is 163.1 bpa. We have heard a lot of analysts calling for new crop corn yields to be significantly lower than trendline before we have even seen planting intentions. If you look at the chart below, you will see that since 1988, we have been below trendline only 9 of the 24 growing years for corn. By those odds, we have a 62.5% chance of seeing corn finish above trendline. Looking back a couple of years ago when we were coming off of a good year, we saw a lot of analysts calling for above trendline yields. I am not saying that we can predict the weather because hindsight will always be 20/20. I am just showing the numbers of what we have seen in the past. If we get the corn planted and have a normal growing year, we could easily be trading at levels well below where we stand today.
There are a few other notes to point out from the USDA Annual Outlook. They are forecasting ethanol demand going down over the next 2 years due to overall gasoline demand going down and we are hitting the blending wall. For corn-demand-for-ethanol to keep the same pace or go higher, we will most likely have to see the export market stay strong. Brazil has been a heavy importer of US ethanol but if South America can get their sugar crop back in line, we could easily see these exports slow down.
Animal numbers are down sharply and animal profitability is increasing only slightly. Cattle-on-Feed came out at 102% (estimates at 103%). If we get the acres planted we could see the price heading lower and demand picking up with those lower costs.
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