As we head into spring planting, differing opinions abound regarding future corn prices. Both bulls and bears can make plausible arguments backing up their outlooks. Let’s take a look at some of the issues.
First and foremost, the two biggest issues that will impact prices in the coming months will be planted acreage and yield. Recent news that has helped support prices has centered on spoiled corn due to high moisture and vomitoxin issues. These will be behind us within a couple of months. Then the concentration will turn primarily to newly planted crops.
As the table indicates, the variance and final outcome can be very large. To begin with, understand that final prices are the function of carryover supply and more specifically the stocks-to-usage ratio (ending carryover divided by total usage, or “how much extra is there”), which has historically had a very reliable correlation to average price.
Last year, U.S. farmers planted 86.5 million acres of corn. Keep in mind, however, in 2007-2008, over 93 million acres of corn were planted. Some believe that acreage will not be up this year – particularly in Iowa – because of lower yields as a result of corn-on-corn acres. I will argue, however, that will not be the case. As I write this, the economics of corn vs. soybeans still strongly favor planting corn and I believe the American farmer will most likely plant the crop that forecasts to be the most profitable – especially when the difference is considerable.
Some will also say that acres in the South will be switched from corn into cotton. I will not argue that point – but this would not affect a large percentage of total planted acreage. There are also over 6 million acres of wheat that did not get planted. Some of that was double-crop, but much of it will go into corn.
The bottom line: We’re sticking with our 89-million acre estimate of this year’s planted corn acres. The final outcome could be as low as 87.5 or as high as 90 million. But with all things being equal and looking at “normal” weather between now and springtime, I am going to stick with 89 million.
The next big issue: estimating yield before the crop is even planted. In 2009-2010 the national average yield was 164.9 bu./acre vs. 153.9 in 2008-2009. I credit the gain to improved genetics, not a cool July 2009, as others do. My estimate right now is 168 bu./acre. If corn yields are increasing on average at 7 bu./acre/year nationally as geneticists tell us, then yields even above 172 are not out of the question.