Big corn, soybean crops to replenish stocks

Big corn, soybean crops to replenish stocks

Grain and oilseed prices have fallen sharply as farmers harvest one of largest crops on record, presenting opportunities for livestock sector.

WITH a single harvest, record-high corn and soybean prices are a fading memory, bins are bursting at the seams with the largest corn crop in history and livestock producers might give serious thought to expanding.

The U.S. Department of Agriculture confirmed Nov. 8 what the trade has assumed: that with drought firmly behind them in the Corn Belt, farmers are harvesting the largest corn crop on record and a massive soybean crop as well.

Releasing its first crop production and supply and demand estimates since mid-September, USDA reported corn production of 13.989 billion bu., which would, in fact, be a record-large crop. Based on an average corn yield of 160.4 bu. per acre across 87.2 million harvested acres, the production figure was fairly close to what traders had anticipated and was 146 million bu. larger than USDA had projected heading into harvest (Table).

Despite a 1.9 million-acre reduction in the number of acres harvested, USDA's 5.1 bu. per acre yield bump was more than enough to push projected production closer to the 14 billion bu. mark that the trade had expected.

In its supply and demand balance sheet, USDA increased its estimate of feed and residual usage of corn by 100 million bu., up 20% from a year ago, reflecting more favorable prices for feed. USDA also increased its estimate of corn exports by 175 million bu., bouncing off last year's 42-year low.

With those demand-side increases, ending stocks were actually smaller than expected and toward the low end of the trade's pre-report estimates.

"These high consumption numbers offset the higher production number, resulting in a more positive result than people feared coming into the report," said Ohio State University economist Matt Roberts. "Futures prices should stay above $4/bu., and cash prices should say around $4/bu."

While livestock feeders and overseas customers are happy to buy corn at such relatively reasonable prices, Roberts said the price profile was "slightly disappointing" for grain producers.

Those prices are causing some concern that producers will again have to sell crops at or slightly below the cost of production, something that hasn't been done in the Corn Belt for several years. Based on breakeven estimates calculated by University of Illinois economist Gary Schnitkey, current cash corn prices are below the 2013 breakeven level (Figure 1).

"Cash bids for 2014 fall delivery are near $4.35/bu., near the $4.31/bu. breakeven level," Schnitkey explained. "Corn prices in the low $4.00 and high $3.00/bu. range are possible over the next several years, leading to the possibility of losses."

Schnitkey conceded that there are some possibilities that breakeven prices may decline over time, but the process will be slow and, in the case of issues such as cash rent renegotiation, is challenging to secure.

Schnitkey found a similar situation with soybeans. While 2013 delivery prices are still above the breakeven level, 2014 cash bids could fall below his breakeven projection of $10.70/bu. (Figure 2).

USDA's November crop reports showed, as with corn, a very large soybean crop coming in from freshly harvested fields. Soybean production of 3.258 billion bu. came as a result of improved yields offsetting smaller harvested acreage.

The market was anticipating, generally speaking, what USDA had to say about the soybean crop. Even so, the supply of U.S. soybeans is projected to remain fairly close to historically tight levels, meaning that potential crop disruptions of any kind in the U.S. or South America over the next year could drive prices back to 2012-13 levels.

"With continued strong Chinese demand for soybeans, it is still questionable if South American production will be large enough in 2014 to supply total world needs," University of Illinois economist Darrel Good said. "If not, an increase in production may be needed in the U.S. in 2014, pointing to higher prices than now being offered for the 2014 crop in order to attract more acreage."

The market will start thinking more and more about "buying acres" for 2014 production, as Good indicated. Despite the sharp drop in corn prices, projected returns still favor corn production next year, meaning the soybean market may need to bid up prices over the next few months to encourage producers to plant enough beans to further rebuild stocks.

Conditions, it seems, could be favorable again next year, leading to another bumper crop.

The National Oceanic & Atmospheric Administration released its latest long-term forecast last week, suggesting that neutral El Nino weather conditions should persist through planting season in the Northern Hemisphere.

Even so, Iowa State University climatologist Elwynn Taylor told agricultural lenders gathered in Minneapolis, Minn., last week that a period of more volatile weather is on tap, when crop yields are much less stable relative to the trend line.

"Over the past century, we've had four periods of stable corn yields, each lasting roughly 18 years," Taylor explained. Each of those periods was followed by a much longer period — 25 years — when corn yields were much more volatile.

Taylor pointed out that between 2004 and 2009, the U.S. saw six consecutive years of above-trend corn yields — something that had never happened before.

"During that period, we had six consecutive years of crop failure for oil or wheat crops in the Northwest and western Canada," he said. "Then, six years of El Nino ended, and we went through three years of below-trend yields due to La Nina, and we're back to trend this year."

While improved seed genetics and technologies were credited with those six years of yield gains, Taylor said those yields were, instead, the result of favorable weather conditions and typical yield trends.

 

Market recap

Corn prices fell steadily last week as the market continued to let the prospect soak in of a crop that was more or less as big as advertised.

After an initial jump in prices following the crop report, which was slightly less bearish than had been feared, corn prices fell for four consecutive sessions last week, settling Thursday at $4.265/bu. for the December contract.

Cash corn prices have continued to trend between $4.12 and $4.22 over the past two weeks in many parts of the Corn Belt. Basis levels haven't softened as much as might have been anticipated, however, as the market needs to encourage farmers not to store every bushel they harvest.

Soybean futures, meanwhile, saw a solid uptick in prices following the November crop report. The nearby contract gained more than 40 cents in the days following the report's release, although after four sessions of gains, last Thursday's trade softened slightly on some profit-taking.

Soybean meal prices, which had been trending downward toward $390 per ton on the Chicago Board of Trade, settled as high as $427.70 last week but finished the week a few dollars short of that level.

 

USDA November crop production and stocks estimates

 

USDA

Average

Range of

USDA

2012-13

 

Nov. est.

trade est.

estimates

Sept. est.

final

Corn

Production, bil. bu.

13.989

14.003

13.421-14.376

13.843

10.780

Avg. yield, bu./acre

160.4

158.933

155.6-163.3

155.3

123.4

Harvested area, mil. acres

87.2

88.097

86.900-89.135

89.135

87.4

Ending stocks, bil. bu.

1.877

2.029

1.799-2.292

1.855

0.824

Soybeans

Production, bil. bu.

3.258

3.221

3.137-3.298

3.149

3.015

Avg. yield, bu./acre

43.0

42.407

41.5-43.3

41.2

39.6

Harvested area, mil. acres

75.7

75.928

74.700-76.980

76.378

76.100

Ending stocks, bil. bu.

0.170

0.172

0.145-0.240

0.150

0.141

*Sources: USDA, Reuters.

Big corn, soybean crops to replenish stocks

 

Volume:85 Issue:47

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