Because of poor soybean yields and early indications from corn seed sales, most analysts are expecting at least a modest increase in corn acres this year. So let's take a look at the assumptions.
The table below explains the road ahead for corn prices. This past year U.S. farmers planted 78.7 million acres of corn.
Under the “average” estimates, we're going to assume U.S. farmers will plant 80.5 million acres of corn this year. That will result in about 73.3 million harvested acres, assuming a normal trend line yield of 141 bu./acre. The result would be a crop of 10.3 billion bu. If usage keeps pace, that number will increase to at least 10.5 billion, which will result in another decline of carryover supplies.
Take a look at the bearish scenario. U.S. farmers need to produce a bumper crop this coming year in order for supplies to maintain current levels and/or show even a slight increase.
Now put on your super bull hat. Plant the same number of acres or even slightly higher than we planted this year, Drop the corn yield only to 138 bu./acre and your stocks-to-usage ratio drops to 5%. In more fundamental terms, a yield at that level should easily push corn prices to a level above $3/bu.
The January crop report changed the forecast of corn prices for months to come. This was very instrumental for the bulls. At a minimum, this will result in extreme volatility in prices throughout the growing season. It may well be that the majority of this bullish news gets discounted into the market by the end of March, when we have a better handle on how many acres will be planted. Seasonals point to a strong probability of a March high.
Whether the high comes then or later, however, fundamentals have certainly shifted the expected average price of corn at least 15¢/bu. higher for this coming crop. In the last six years most farmers have learned that it almost always pays to sell new-crop corn when December futures hit $2.50. My guess is that that won't work at all this year.
We're going to have opportunities to sell new-crop corn higher than $2.50, and it seems likely that we'll be able to sell corn at $3 or higher. Fasten your seat belts.
| Bullish | Average | Bearish | ||
|---|---|---|---|---|
| Supply (million bu.) | ||||
| Beginning Stocks | 981 | 981 | 981 | |
| Production | 9,936 | 10,335 | 10,613 | |
| Imports | 10 | 10 | 10 | |
| Total | 10,927 | 11,326 | 11,604 | |
| Usage (million bu.) | ||||
| Food/Seed | 2,600 | 2,610 | 2,650 | |
| Feed/Residual | 5,700 | 5,800 | 5,750 | |
| Exports | 2,100 | 2,100 | 2,100 | |
| Total | 10,400 | 10,510 | 10,500 | |
| Ending Stocks | 527 | 816 | 1,104 | |
| CCC Stocks | 3 | 3 | 3 | |
| Free Stocks | 524 | 813 | 1,101 | |
| Average Price | $2.70-3.20 | $2.45-3.00 | $2.20-2.40 | |
| Acreage (in millions) | ||||
| Planted | 79.1 | 80.5 | 81.0 | |
| Harvested | 72.0 | 73.3 | 73.7 | |
| Yield (bu./acre) | 138 | 141 | 144 | |
| Free Stocks/Use Ratio | 5.00% | 7.70% | 10.50% | |
| Source: USDA | ||||
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.
One of the disadvantages of writing outlook articles in print rather than on the Internet, e-mail or telephone is the obvious time lag involved.
There have been more times than I would like to count that, after sending an article off to press, I wish I was able to get the article back, even before it lands in the mailbox. One of those articles I wish I had back was my December column where I wrote a less-than-bullish outlook on corn just before everything in the world began to change.
One thing about marketing is that none of us can afford to be rigid. We most certainly have to be flexible in our opinions when things change.
Going into USDA's January crop report (released Jan. 12), everyone in the business already knew that supplies of corn throughout the world were tight. Carryover supplies are now estimated to be the lowest in recorded history, at only 67.5 million metric tons. To keep this in perspective, last year's ending supplies were 102 mmt; in 2001-2002, ending stocks were 129 mmt.
The important question is whether the rest of the world will buy corn from the U.S. in order to fulfill its needs. More specifically, the January crop report changed some key fundamentals that will impact the corn market for months to come. What can have such an impact? Consider the following:
Production has been reduced considerably. USDA lowered this past year's crop from a previous estimate of 10.28 billion bu. to 10.1 billion bu. Corn usage is expanding even more than expected. Increases in ethanol usage aren't a surprise. But food usage and exports were also increased, raising total usage of corn this year to an expected 10.23 billion bu. vs. last year's 9.53 billion.
Carryover supplies of corn are now expected to only be 981 million bu. vs. this past year's 1.087 billion. That puts this year's stocks-to-usage ratio at 9.6%. But the real bullish news in corn lies in what is about to happen over the next few months.