Corn market could be vulnerable to supply jump

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WASHINGTON, D.C. -- High corn prices have been supported by a combination strong export demand, lower yields and climbing corn-based ethanol use, but U.S. Department of Agriculture economist Ed Allen said times may be changing.

In his Feb. 24 presentation on the grains and oilseeds outlook at the Feb. 24 U.S. Department of Agriculture Agricultural Outlook Forum, Allen said the USDA is predicting a return to better yields for U.S. corn growers, flattening demand for ethanol and global expansion in corn production.

After tight corn stocks in 2011-12, Allen said things will be dramatically different in 2012-13. The USDA has projected that 2012 combined area for wheat, corn and soybeans is projected to hit record levels, 3% higher than 2011.  Together, the corn, soybean and wheat crop planted area is projected at 227 million acres, up 5.7 million acres from 2011 and the highest levels since 1984.

“We expect a yield rebound, higher acreage. The production response will be dramatic,” he said.

Corn plantings at 94 million acres, are projected at the highest level since 1944 and up 2.1 million acres from 2011. Total production is projected at 14,270 million bushels, up 15% from a year ago and above the previous record of 13,092 million bushes in 2009.

The season average price for corn is projected at $5 per bushel for 2012-13, down $1.20 from the midpoint of the record high range during the 2011-12 season.

U.S. corn acreage has increased because of long term demand, but yields have fallen below trend for the past couple of years. Allen said the USDA believes corn yields will return to 1990-2010 trend and average 164 bushels per acre in 2012.

In response, the USDA projects that corn ending stocks are projected to double, which the agency will push corn prices sharply lower by harvest.

Feed and residual use of corn in 2012-13 is projected at 5,200 million bushels, up 600 million bushels from 2011-12.  Feed Prices are expected to decline, creating an incentive to increase feed use.

Falling gasoline consumption and declining ethanol exports will limit corn used to produce ethanol, according to the USDA. Corn used to produce ethanol in 2012-13 is projected to decline 50 million bushels to 4,950 million bushels.

“Ethanol has reached 10% of gasoline use and is bumping up against the blend wall,” Allen said.

Corn exports are projected at increase 200 million bushels to 1,900 million bushels, according to the USDA.

Soybean planted acreage is expected to equal 75 million acres, about the same as last year. Soybean supplies are expected to increase 8%, but ending stocks are projected to decline with high export demand and crushings.

The 2012-13 season average soybeans price is projected at $11.50 per bushel, down from the $11.70 price average in the 2011-12 season.

Wheat planted area for 2012 is projected to increase 3.6 million acres to 58 million acres, up 3.6 million acres from a year ago.

The average price for wheat in 2012-13 is projected at $6.30 per  bushel, down about $1 from the 2011-12 season.

Allen said key factors that will  influence grain and oilseed prices include current growing conditions for soybean and corn crops in South America, the prices and weather in advance of U.S. spring planting, China’s soybean and corn import growth, global macro economic growth and the value of the U.S. dollar.

Future growth in China’s demand for soybean and corn is a major uncertainty that will affect U.S. prices, supply and demand.

Allen said the Ukraine has seen a “spectacular response” to high corn prices, with corn production there nearly doubling in 2011-12.   Brazilian farmers are also expected to increase double-cropping of their  land to produce corn, he said.


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