Declining corn yield may point to 2013 rationing

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Reports of dry soil and stressed crops throughout the Cornbelt spurred the commodity traders into a bullish attitude Tuesday with a 26¢ increase in new crop corn and a 40¢ to 48¢ increase in soybeans.  The sudden interest comes with the realization that supplies of corn, despite the large acreage estimates, may not reach the 14.7 billion bushel projection of USDA.  Instead, some sources have cut one billion bushels from that, putting supply and demand at the same level.  It may be seat belt and deep breath time again for unpriced farmers still with inventory or hedges as the market sorts out the Great Agriculture Reality show.

Traders and some farmers may have been a bit frustrated with the USDA’s June 12 Supply-Demand report not making any changes to the new crop production or use, leaving the May estimate numbers locked in place.  But the numbers are changing, says Kansas State University agricultural economist and marketing specialist Dan O’Brien.  In his recent newsletter, he says, “A combination of tight “old crop” corn supplies and increasing worries about drought damage to the 2012 U.S. corn crop are changing the U.S. supply-demand and price prospects for both the remainder of MY 2011/12 (through August 31st) and the coming “new crop” 2012/13 marketing year.”  He cites hot and dry conditions from the western to central areas of the Cornbelt as causing crop analysts to reduce their production estimates to the 13.3 to 13.8 billion bushel range.

Given the low domestic and global stocks of feed grains, and particularly corn, O’Brien says such a reduction would have dramatic consequences on prospects for supply-demand balances of feed grains. He says if the yield drops with the drought impact, there would be no appreciable growth in stocks anywhere for the next marketing year, and he added, “Grain prices would need to remain at historically high levels to ration usage.” 

Until the USDA can next quantify the size of the 2012 crop, the best indications come from anecdotal reports.  Purdue ag economist and marketing specialist Chris Hurt wrote in his weekly column that the Indiana corn crop was declining in high gear.  He said three weeks ago only 8% was in the poor to very poor category, but that has now increased to 24%.  He added, “The decline in Indiana corn conditions in the past week are among the largest in the last decade.”

The next headline-maker will be June 29 when USDA releases its estimate of stocks, and how much will be available to cover the US demand into the inflow of new crop supplies.  The market will be looking at third quarter use of feed grains to determine the trend of demand.  University of Illinois ag economist and marketing specialist Darrel Good says based on recent reports, those should be 390 million bushels of exports and 1.64 billion bushels for the ethanol, industrial and food sector. 

In his recent newsletter, he says feed and residual use is more difficult to estimate, demonstrated by the 550 million bushel swing from the same quarter from 2010 to 2011.  He says his best calculation is feed and residual use for the past quarter being more than the 716 million bushels last year, pointing to June stocks at 3.1 billion bushels.  And he said that would mean feed use for the year would be more than the 4.5 billion bushel USDA estimate.

Good concludes by saying, “The June 1 stocks estimates take on a little more importance this year due to the relatively tight year-ending inventories projected for both corn and soybeans, even though more early-harvested corn is expected this year. The surprises in recent corn stocks estimates also add some drama to the upcoming report.”

With the faltering corn yield, the impact will be felt on the supply available during the coming marketing year and it may be one billion bushels less than the early estimates due to drought conditions.  Cornbelt yields are shifting rapidly downward.  USDA next reports on June 29 the grain stocks on hand and the use trends, which may indicate fewer bushels available in late summer.  Fewer bushels will be available in 2013, with rationing a possibility.

Source: FarmGate blog

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