USDA released the June 1 Supply and Demand Report on June 10, and cut projected 2008 U.S. corn yields by 5 bu./acre from the estimate on May 1. USDA reduced projected 2008 corn yields due to late planting and poor early growing conditions in the major corn producing areas of the U.S. As of June 1, USDA is now projecting a national average corn yield of 148.9 bu./ acre, compared to 153.9 bu./acre on May 1. The U.S. average corn yield in 2007 was 151.1 bu./acre, and 149.1 bu./acre in 2006. Of course the June 1 USDA Report does not take into account lost crop from flooded fields in Iowa, Minnesota, Illinois, and other States that has occurred in the past two weeks. On June 12, it was estimated that 15-20% of Iowa’s corn and soybeans were under water. Corn and soybean growing conditions continue to be less than desirable in most major corn producing areas of the country.
USDA is now estimating the 2008-2009 corn carry-over, or ending stocks at 673 million bushels, which is down from an estimate of 763 million bushels on May 1. This compares to corn ending stocks of 1.43 billion bushels for 2007-2008. The total corn usage for 2008-2009 is estimated at just over 12.5 billion bushels, with a total estimated 2008 U.S. corn production on June 1 of 11.7 billion bushels. The current estimated U.S. corn ending stocks represent than a 20-day excess supply of corn for 2008-2009, based on current use estimates.
Crop Prices Respond To Weather
The combination of poor growing conditions in the Midwest from late April to early June, along with a large amount of crop acres lost due to flooded fields and other weather problems, have lead to the highest corn prices on record, and near-record soybean prices. Current corn futures prices on the Chicago Board of Trade (CBOT) closed at $7.31/bu. on Friday, June 13, which is up from $6.10/bu. on June 4, and $5.66/bu. on April 1. Current soybean futures prices on the CBOT were $15.60/bu. on June 13, compared to $13.68 per bushel on June 4, and $11.97/bu. on April 1. The basis between CBOT futures prices and local cash prices remains quite wide in most areas of Southern Minnesota, ranging from $.40-.60/bu. lower for corn, and $.80 to over $1/bu. lower for soybeans. Many are comparing the current market scenario to 1983 or 1993, when major weather problems lead to greatly reduced corn and soybean production in the U.S.
The very rapid rise in crop prices is kind of a “mixed-blessing” to crop producers. The higher commodity prices offer some very good pricing opportunities for producers that still have some 2007 corn and soybeans left to sell, as well for price potential for the 2008 and 2009 crop. The problem is that many users of corn and soybeans, such as ethanol plants, and some grain elevators, are buying corn on an as-needed basis only, and are not offering forward contracts very far into the future. This means that producers may not be able to fully take advantage of the very high corn and soybean prices, unless they want to take a hedge or options position on the CBOT. Pricing grain with the CBOT requires producers to cover margin calls, if grain prices continue to move higher. Some producers that hedged 2008 anticipated grain production several months ago, now have $2-3/bu. in margin calls, which in most cases requires borrowed funds to finance the hedges.
The high grain price is also accelerating negative profit margins in livestock production, as well as for renewable fuel plants. This could lead to major liquidations of beef cattle and hogs, and shut-downs of some renewable energy plants. Many biodiesel plants have either temporarily stopped or greatly slowed production, and a growing number of ethanol plants are slowing production levels as well. In addition, construction of some new ethanol plants have either been delayed or discontinued.
New Permanent Disaster Program
The recently completed Farm Bill, now being implemented by USDA, may offer some much needed help to farm operators in the areas being impacted by recent flooding and severe weather in many areas of the Midwest. A new “Permanent Ag Disaster” program will be initiated for the 2008 crop year. This program is intended to replace the need for passage of frequent “ad-hoc” disaster programs after a natural disaster occurs, which should make it much easier for affected producers to apply for disaster assistance through USDA, and should make it easier for producers to receive disaster payments on a timely basis.
Producers will be required to carry Federal Crop Insurance or NAP Insurance to be eligible for the new disaster program. For 2008, producers without insurance will have an opportunity to pay the NAP enrollment fee at their county FSA office, in order to become eligible for the new disaster program. Producers in the Midwest that did not purchase Federal Crop Insurance for 2008, and are facing significant crop losses, will want to watch for notices from their FSA office regarding how to be eligible for the 2008 disaster program. Producers that purchased crop insurance for 2008 are already eligible for the new disaster program.