With unseasonable amounts of snow falling from Des Moines, Iowa, to Wisconsin Dells, Wis., an already stalled corn planting effort was further stymied last week.
As of April 29, only 5% of the nation's expected corn acreage had been planted, tying the record low set in 1985. With a five-year average pace of 31% planted by the end of April, it's easy to understand why farmers and traders are sweating bullets about getting a crop in the ground.
The storm, coupled with heavy rainfall events in many crop production regions, dumped several inches of precipitation across the country over the past two weeks. With snow-covered fields and waterlogged soils, planting corn has become an exercise in patience for most farmers.
Weather woes have clearly challenged the market's presumption that lower grain prices are coming with a bin-busting crop that replenishes drought-sapped stocks. In the final days of April, corn prices stopped falling altogether.
"While some could argue that, already, the market has built in a notable weather risk premium, news that farmers have yet to get the crop in the ground certainly has added to the risk facing this year's crop," economists Steve Meyer and Len Steiner explained in a "Daily Livestock Report."
Of notable concern is the likelihood that late planting will, in fact, reduce planted acreage from what farmers had originally intended. Meyer and Steiner noted that some analysts now believe a reduction of 2 million to 3 million acres from March estimates is a real possibility.
The good news, for end users at least, is that even with a sub-trend yield of 157 bu. per acre, each 1 million-acre reduction in acreage will reduce production by roughly 144 million bu. So, plantings of 94.5 million acres would still surpass last year's crop by nearly 26%.
Remember that the larger concern with late planting is the possibility for adverse weather conditions during the critical pollination stage, so weather conditions post-planting are a major concern. For example, in 2009, producers had planted only 48% of the crop through May 10 (Figure 1) but produced one of the largest corn crops in history.
Meyer and Steiner noted that a May 2 snowstorm blanketing the heartland is not good news but also pointed out that the correlation between yield and planting progress is not all that strong (Figure 2). Statistically, the correlation coefficients of yield to planting progress at weeks 16 (last week) and 21 are 0.34 and 0.35, respectively.
Furthermore, the correlations between planted acres and harvested acres in week 16 are 0.36 and 0.37, respectively. In other words, planting date has some effect on acreage but not as much, perhaps, as widely assumed.
Weather conditions remain a key concern for the wheat market, with last week's annual Kansas Wheat Tour suggesting that the state's winter wheat production will drop 18% from last year. The tour projected production of 313.1 million bu. based on an average yield of 41.4 bu. per acre.
The Oklahoma Wheat Commission reported last week that state wheat production will drop at least 45%, down to 85.5 million bu. from last year's 154.8 million.
Spring wheat planting has been delayed significantly due to the precipitation and unrelenting winter-like conditions. Just 12% of the crop was planted in April, compared with 70% last year and the five-year average of 37%.
Beleaguered corn producers might opt to plant more soybeans, of course, and with a growing interest in canola production in recent years, spring wheat acres could potentially become canola acres. The U.S. Department of Agriculture's Risk Management Agency lists June 5 as the final planting date for canola under the federal crop insurance program.
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How much needed?
While most market analysts were watching weather maps and considering supply-side concerns, University of Illinois agricultural economist Darrel Good pondered just how large the 2013 corn crop needs to be in the first place.
Determining consumption is a challenge since demand is, in part, a factor of price and price is, in part, a factor of production; however, looking at each demand segment offered some level of introspection into likely 2013-14 needs.
Good noted that domestic non-feed corn use is relatively straightforward as demand is relatively stable and not terribly price-sensitive. With ethanol consumption straddling the 13 billion gal. "blend wall," ethanol will consume 4.84 billion bu. of corn, and other food and industrial uses will likely take another 1.4 billion bu.
Feed use, on the other hand, is far more price sensitive, so production this fall will matter. At current prices, Good noted that feed demand for corn is roughly 4.4 billion bu., but a large crop could decrease prices and bump up demand to as much as 4.8 billion bu.
Exports, meanwhile, have fallen precipitously over the past few growing seasons and are currently projected to be only 800 million bu., according to USDA. Good said up to 1.2 billion bu. could be bound for foreign shores, well below the 2003-10 range for exports.
With all that in mind, Good estimated a crop of 12.2 billion to 12.3 billion bu. of U.S. corn for the 2013-14 marketing year.
"A crop of 12.5 billion bu., then, would be large enough to supply the market and add a small amount to yearly ending stocks. A crop of that size would be 2.1 billion bu., or 14%, smaller than production prospects based on planting intentions and trend yield," he said.
USDA will update the market on supply, consumption and price prospects in the May 10 "World Agricultural Supply & Demand Estimates."
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Market recap
Weather was clearly one of the key driving factors in the market last week, although overseas concerns surfaced as well.
Traders continued to watch the avian influenza situation in China to determine the ripple effects of the outbreak on the feed sector.
According to the U.S. Grains Council (USGC), the overall impact on feed demand may not be as large as had been anticipated in mid-April. If consumers simply shift protein consumption from poultry to pork, for example, feed demand will more or less shift as well, offsetting potential lost feed demand for poultry.
"Since hogs are less-efficient converters of feed to meat and use a higher proportion of energy feeds like corn, any (substitution) of pork for poultry that occurs will dampen the negative effect of reduced poultry production on feed demand," Bryan Lohmar, USGC director in China, said.
Given that China produces some 17 million metric tons of poultry annually, any disruption to the industry is a major concern for feed producers. USGC estimated that a 5% drop in meat production would result in a reduction of nearly 88.5 million bu. in corn demand, or a 1.1% decrease from USDA's estimated corn demand for China last year.
Corn prices opened the week with a bang, locking the daily 40-cent limit higher on a handful of contracts as planting weather conditions turned sour. In aggregate, old-crop prices gained nearly 50 cents by the close of trade last Thursday.
Soybeans, on the other hand, struggled throughout the week as traders assumed that any delay in corn planting could sprout additional soybean acres. USDA did report a large sale last Thursday of 290,000 metric tons of soybeans to China for the 2013-14 marketing year.
Ethanol production came back on line in earnest, averaging 857,000 barrels per day for the week ending April 26, a gain of 4,000 barrels per day from the previous week and the highest rate of output this year. Stocks dropped 3.2% and hit a low for the year.
Last Thursday, Statistics Canada reported grain and oilseed stocks as of March 31, with stores of all major crops reduced from last year's levels.
Volume:85 Issue:18