Since the USDA updated the U.S. and World 2008/09 and 2009/10 balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) on January 12th, grain prices have declined drastically. The WASDE reported record yields and production for the 2009/10 crop, which lead to an increase in ending stocks. Since the release on January 12th, corn prices have declined from $4.22 to $3.64, soybean prices from $10.01 to $9.51, and wheat prices from $5.72 to $4.98.
The WASDE reported a record U.S. corn yield of 165.2 bushels per acre, topping the previous record held in 2004 of 160.4 bushels per acre. In addition, soybeans were estimated at a record yield of 44.0 bushels per acre.
Corn stocks increased 5% on the record yields, while soybean stocks were estimated lower on increased domestic consumption. Now that U.S. farmers are capable of record yields, grain supply concerns decreased because of the capabilities of record production.
The declined prices in grains came as a surprise to numerous analysts. Many were expecting a decrease in estimated yields and production due to the extremely poor harvest conditions and high amount of unharvested corn throughout the Midwest. The wet harvest that started in October set farmers back over a month in many states because fields were inaccessible. Particularly high moisture levels also hurt farmers this fall.
Staple grains, such as corn and soybeans, have increased to record yields in 2009, and they are increasing faster than the world population growth. The world population growth rate of 1.17%, according to the World Bank, is significantly lower than these yield growth rates over the past 30 years of 2.46% for corn and 1.81% for soybeans, according to the USDA.
The question is; can grain production keep up at these record rates while farmland is disappearing at a rate of 2 acres per minute in the U.S., according to the American Farmland Trust. Record yields do not necessarily mean record production if acreage is decreasing.
The demand for commodities will grow substantially over the long-term, but in the short-term, commodities will be range bound due to the unexpected increase in supplies. Any time there is a change in the supply and demand, there will be quick adjustments in trading prices. Unfortunately, the recent USDA figures have had a negative impact on the commodity prices because of higher supplies. Farmers are doing great work, especially in one of the most difficult harvests in recent years.
Over 50% of all counties in the Midwest are considered disaster areas according to the USDA, yet 2009 resulted in record production and yields. Something is not adding up. If you drive through the Midwest, there are unharvested corn fields everywhere. Either USDA survey data is over stated, or farmers are growing extremely exceptional crops.
To help answer concerns and questions throughout the agriculture industry, the USDA has announced that they will re-survey fields and take into better consideration unharvested corn fields across much of the U.S. The re-surveyed data will not be available until March at the soonest.
We are very anxious to hear the re-surveyed data come March from the USDA. Corn, wheat, and soybeans are being traded approximately 8% to 13% lower than their December 31st prices because of the recent USDA reports. If updated USDA figures indicated a lower, more realistic estimate of crop yields and production, grain prices could rebound quickly and sharply.
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