Rationing the 2012 corn crop - Are we there yet?
While corn demand keeps rising, and growers have responded by planting more acres, not all are created equal. With corn going into less traditional areas and rotational plantings being sacrificed for more corn-on-corn production, yields will more likely fall short of the trendline. The 2012 corn crop will be much smaller than anticipated earlier in the year when producers planted near-record acreage in a very timely fashion. Prospects then were for an above-trend average U.S. yield and a record large crop in excess of 14.5 billion bushels. A crop of that size would have allowed for an increase in consumption and some build-up in inventories and resulted in much lower prices than experienced over the past year. In May, for example, the USDA saw prospects for U.S. corn stocks to grow from 850 million bushels at the end of the current marketing year to 1.88 billion by the end of the 2012-13 marketing year. The average farm price was expected to decline from $6.15 this year to $4.20 to $5.00 next year.
Weather conditions since the crop was planted have been generally unfavorable over large areas so that crop conditions have deteriorated and yield prospects have declined sharply. In the first report of the year the USDA’s Crop Progress report indicated that 72 percent of the crop was in good or excellent condition. By July 8, only 40 percent of the crop was in good or excellent condition. The USDA’s May WASDE report indicated potential for a national average yield of 166 bushels. Just two months later the July report indicated potential for a yield of 146 bushels. The USDA’s July supply and demand projections for the 2012-13 corn marketing year are presented in the first column of Table 1. Despite the drop in yield these projections result in year ending stocks in excess of beginning stocks. The mid-point of the expected average farm price for 2012-13 is $5.95, $0.35 below the average now expected for 2011-12.
A continuation of widespread stressful weather suggests that the average U.S. corn yield could be lower, perhaps much lower, than 146 bushels. At the same time, the price of December 2012 corn futures has increased about $2.00 since mid-June as production prospects continued to deteriorate, putting prices well above the average currently projected by USDA. A key question in the market outlook is whether the current level of prices is high enough to ration usage in light of substantially diminished expectations about supply. Further questions about the price level are raised by the prospect of even smaller production if weather conditions do not take a turn for the better.