As you might suspect from the headline, that's the bad news to share. The good news is that unless yields are at an all-time high, corn usage increases will outstrip production increases.
For the first time since 1996, the corn market is poised for weather rallies this spring and summer. And acreage is going up.
Last year, U.S. farmers planted 75.8 million acres of corn and this year our estimate is that it will be closer to 78.5 million acres. As you can see in the table below, if yields remain the same as last year's at 138.2 bu/acre, we'll still have a crop under 10 billion bushels. Throw in a few weather problems, which could drop the yield average to 136 bu/acre, and corn prices will become one hot potato.
Sound impossible? Historically, the numbers speak for themselves. Yields peaked in 1994 at 138.6 bu/acre, and then dropped to 113.5 in 1995. The average yield over the last eight years has been 131.15 bu/acre.
The bottom line: I think it's easier to argue a bullish case than it is a bearish case in corn prices this year.
Soybeans — Another Story
No question, soybeans are a beast of their own. I hate it when economists give such a wide variation in forecast, such as in the soybean table above right. No doubt, production and prices will end up somewhere between the bullish and bearish scenarios as outlined — but that's not much help.
The reality is, however, that in soybeans a small change in yield can result in a dramatic change in both production and price. Before we even get the crop planted, this table clearly shows that anything can happen in a soybean market.
The South American Problem
It's well-documented that South America has, in many ways, taken the world market away from us. In the last 10 years, soybean production in the U.S. has risen 32%, our exports are up 31% and crush is also up 31%. But in the world market, production has increased 56% and consumption has increased by 90%. We've been, to a large extent, a non-participant.
Unfortunately, we're facing the fact that the U.S. soybean market is a domestic market. As long as the value of the U.S. dollar stays strong and South America keeps growing more soybeans, I don't know that there's any way we can change this trend. Many people are doing what they can to increase our share of exports. So far the results have been negligible.
Parting Thoughts: In the last two years we've had negligible weather rallies in the market. This year, the fundamentals are in place with smaller carryovers (corn) and weather rallies are now a strong possibility. Wait for some better selling opportunities.
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.