Now that we know how many acres farmers are intending to plant, the critical factor shaping production this year will be crop yields, and the yields will depend on the weather. This week we look at the supply and demand outcomes under three weather and yield scenarios. Clearly, yields can fall outside of the levels included here – but weather conditions would need to be pretty extreme. Note that the “normal” weather scenario for wheat reflects the mostly poor to very poor condition of the hard red winter wheat crop in the Plains states.
The “normal” weather trend yield for corn is put at 165 bushels per acre. This long term trend indicates that yields over the last three years have been low because of adverse weather, but there is clearly the possibility that weather patterns have shifted and what we think of as “normal” weather is actually more favorable than conditions that may actually exist. Of course, more favorable weather is also possible. For this analysis we put our “poor” weather yield at 152 bushels per acre, 8 percent below the normal weather trend and the “excellent” weather yield is 172 bushels per acre, up 4 percent.
The demand side of our corn balance sheet shows total disappearance steady with this year’s level at 13.4 billion bushels in 2014/15 under the normal weather scenario. Exports and ethanol use are down slightly, but feed use is a little larger. But production exceeds demand by nearly 500 million bushels with a yield of 165 bushels per acre, pushing stocks up to 1.848 billion bushels. Season average corn prices stay above $4 per bushel – at $4.30 is this scenario.
But the corn market gets tighter if the actual corn yield is 152 bushels per acre – as suggested in our “poor” weather scenario. Production in this scenario is 12.6 billion bushels and demand exceeds production even if higher prices cause total demand to decline by 525 million bushels below the level expected for 2013/14. Ending stocks fall to 1.055 billion bushels with the smaller crop and the corn price comes in at $4.90 per bushel. With above trend yields, ending stocks increase to 2.265 billion bushels and the season average corn price is pressured to under $4 per bushel.
Soybean ending stocks rise under all three weather scenarios. The “normal” weather yield is 44.1 bushels per acre and production comes in at 3.575 billion bushels. Our analysis uses our current soybean acreage forecast of 82 million acres, which is 500,000 above the level in the Prospective Plantings report. Under the “normal” weather scenario, production exceeds use and ending stocks increase to 300 million bushels, more than double the level forecast for 2013/14. Even with the increase in stocks, soybean prices come in at $10.25 per bushel for the crop year.
With a yield 6 percent below the trend of the “normal” weather scenario, production is 3.36 billion bushels. While production still exceeds use, ending stocks stay below 200 million bushels and the stocks-to-use ratio is a very snug 5.5 percent. The season average price under the “poor” weather scenario is $12.00 per bushel. If the national average yield comes in at 46.0 bushels per acre, ending stocks reach 400 million bushels and prices are pressured down to $9 per bushel for the crop year.
The national average wheat yield hit a record high in 2013 even with poor growing conditions in the Plains states. Spring wheat yields were extremely good and the high abandonment rate in the Plains states kept the worst fields from pulling down average yields. A similar scenario may be possible this year, but a yield below the 2012 and 2013 levels is a more likely outcome. If the yield comes in near 45.8 bushels per acre, and farmers harvest about 85 percent of the land planted to wheat, production is estimated at 2.177 billion bushels. But it is clear that the crop size is hard to pin down at this point in the season. USDA will start forecasting wheat yield and production in May.
The U.S. imports a significant amount of wheat, with the current year estimate of 165 million bushels. So even though wheat production is below expected demand in 2014/15 in the “normal” weather scenario, ending stocks still rise to 651 million bushels. This pushes the season average price to $5.90 per bushel, down from $6.85 forecast for this current year. The amount of wheat used for food typically increases at about the same pace as population. The key driver for demand for wheat is exports and exports are down compared to the 2013/14 level in all three of our scenarios for 2014/15.
Production in the “poor” weather scenario is 1.967 billion bushels, down almost 10 percent from the level in the “normal” weather scenario. Under the “poor” weather scenario, ending stocks decline from the 2013/14 level, but with lower demand the stocks-to-use ratio actually edges higher. The season average wheat price holds about steady with the 2013/14 level at $6.80 per bushel.
Yields are important to the cotton sector but the share of acres harvested is an even bigger swing factor. In years when yields are very poor – like 2013 – as much as 25 percent or more of the land planted to cotton is abandoned. Drought conditions in Texas and Oklahoma suggest this could be another year when harvested acreage falls far below planted acreage. In good years we have seen more than 95 percent of the planted acreage get harvested. Under our “normal” weather scenario we use an 85 percent harvested to planted acreage ratio and a trend yield of 815 pounds per acre. Production comes in slightly above 16 million bales, nearly 25 percent higher than in 2013. With higher exports and domestic use, cotton ending stocks increase to 2.9 million bales – which is still very tight.
With a lower yield of 775 pounds per acre and farmers harvesting only 75 percent of planted acreage, production is 13.44 million bales and ending stocks fall to just 2.0 million bales. Such tight stocks would push cotton prices up significantly. Under the “excellent” weather scenario production is near 18 million bales and stocks rise to 3.77 million bales. The result would be prices down near 60 cents per pound.
Crop production levels for 2014 can vary widely under different weather conditions and it is too early to know how this year will turn out. But the forecasts outlined here provide some estimates under reasonable yield scenarios. Next month, USDA will begin providing forecasts for the 2014/15 crop years. By then we will have more information about the planting season and spring and summer weather forecasts.