USDA Says Plenty of Corn. Mother Nature Says Maybe?

July-17-07

There are plenty of corn acres to supply food and fuel for 2007/2008, the issues now are what will yields be, and how much demand will we see for the this fall’s crop. In the July 12th supply and demand updates, USDA dropped old crop feed usage by 100 million bushels and exports by 50 million bushels. As a result, expected ending stocks at the close of August rose to 1.137 billion bushels. This means the market will have 37 days supply of corn which is barely adequate stocks for the end of the marketing year.

For now, yields are simply projected by USDA at 150.3 bushels per acre. The first objective estimate of the year will be released in the August 10th updates. That estimate will be based on field evaluations and farmer surveys done around August 1st. Given the current 150.3 bushels per acre, the size of the crop is projected to be 12.84 billion bushels and with the 1.137 billion bushels of carryover from the 2006 crop means 14.0 billion bushels of total supply, a new record. This exceeds the previous total supply of 13.2 billion bushels in the fall of 2005. Ending stocks for 2007/08 are estimated at 1.5 billion bushels and U.S. average farm prices at $3.10 per bushel for the marketing year.

Before we count the bushels however, we know that Mother Nature still has some say. Using the “Crop Progress” report numbers from July 16, my yield estimate for national yields is 149.3 bushels per acre, one bushel under USDA or just 85 million bushels less in for the total crop.

The week of July 16th was setting up to be a critical one as crop conditions in Minnesota, Iowa, and Nebraska were going down rapidly, and the forecast was very hot and dry. However, as Mother Nature has the final say, that forecast turned to more abundant rainfall in some portions of the Midwest and somewhat cooler. Thus, staying with the USDA estimate of 150.3 bushels per acre is reasonable at this point.

Indiana, of course, has more dry soil stress than corn production states to the west. My estimates for Indiana yields as of July 16th were for only 144.3 bushels per acre, an 11.7 bushel reduction compared to the trend of 156 bushels per acre. Weather over the next month will still impact these results. Using the 144.3 bushel s per acre, Indiana production would be 931 million bushels. This would be 85 million bushes larger than last year’s crop, and near the same size as the record 2004 crop.

Another issue for Indiana is the wide variability regionally. In general, the best crops are on the western side of the state, and the poorest are on the eastern side. However, the spotty nature of rain this summer establishes the potential for wide variation in yields within the same community. This variability implies variation in farm incomes and in storage demands this fall.

Given current prospects, corn prices at harvest are expected to be in the $3.00 to $3.20 area given December futures in a $3.40 to $3.60 range and basis levels of 35 to 45 under. By January these bids are expected to be closer to $3.30 to $3.60. Thus gross returns for storage are expected to be 30 to 40 cents per bushel to the first of the year.

For now, the strategy is to watch the sky for rain, to plan on storage, and to wait for demand to build and prices to recover as more ethanol plants come on line this fall and winter and as livestock feeding increases.

Chris Hurt
July-17-07
Purdue University