Questions about the size of the crop should linger into fall (Farm Futures) – USDA’s Aug. 12 crop reports provide the market’s first hard estimate of 2013 corn production. But the agency’s estimates are only a starting point for what could be months of debate about how big the crop is.
Conditions vary greatly across the Midwest, depending not only where you are but who you ask, thanks to another year with weather that’s been anything but “normal.”
Farm Futures surveyed more than 1,350 growers in late July and early August, and found surprising results. First, farmers told us they planted 96.1 million acres of corn, 1.3 million less than USDA reported June 30. Wet conditions forced a little of that ground into soybeans: We found 77.9 million acres of beans, but that was less than 200,000 more than USDA. This suggests a million acres may have been claimed as prevented planting.
Even more ground may never be harvested. The survey found 1.8 million fewer corn acres could be cut for grain. Reductions of harvested acres were especially evident in the Upper Mississippi River Valley, where late planted fields will likely be cut for silage instead.
As for yields, farmers estimated theirs at an average of 155.9 bpa.
That’s the farmer perspective. July weather conditions in key states suggest yields are better, perhaps 157.6 bpa. Weekly condition reports made by USDA crop raters around the country currently indicate yields could range from 158 to 160.9 bpa.
Maps of vegetation in the Corn Belt made with satellite data provide a perspective of the ground from space. These show better than average growth in the eastern Corn Belt, as well as the eastern Plains. Northern fields, including northern Iowa, southern Minnesota and much of Wisconsin, along with Missouri, are in much rougher shape.
The final verdict on yields comes from farmer behavior. Growers typically hold back part of the previous year’s crop until they’re comfortable with how their yields will turn out during the current growing season. Farmers in the eastern Corn Belt started emptying what was left of the drought-shrunk 2012 crop in early August, when their crops pollinated under good conditions. That weakened historically very strong basis in the region.
The cash market told a different story in the Western Corn Belt. Fields there were threatened by below-normal precipitation and slow development. Basis strengthened in early August, because farmers were still reluctant to open their bins, forcing end users to bid up prices.
So how big is the crop? Only time will tell for sure.
Corn prices continue to look for a reason to rally. While a big crop is likely to keep futures depressed, there are a few reasons why the market might be able to move higher.
First and foremost, the crop may not be the 14 billion bushels or more feared by the trade. If acreage and yields are both lower, carryout might “only” double, not triple, as bears propose. Ending stocks of 1.5 billion bushels could allow futures to muster a rally back above $5.
Larger losses, say from a freeze, are hard to predict and don’t happen often. Frost usually just causes problems with quality, not quantity, though there was a big reduction in yields from two freezes in 1974.
Demand should be better, but not that much better. The impact of EPA’s decision on renewable fuels won’t be known until all the details are proposed, but production has plateaued in any event. Tyson’s decision not to buy cattle given a feed additive also doesn’t look like a game-changer.
That leaves exports, where we face plenty of competition. Less corn will probably come out of Brazil in 2014, but the big unknown is China. Parts of the country’s corn growing region faced very hot temperatures this summer, but reports of actual damage haven’t surfaced yet. Remember, however, that China is buying corn from many sources, not just the U.S.
Farmers have built plenty of storage and have profits from good years for cash flow. Holding and hoping have worked in the past, but could be risky into 2014.
Soybeans have plenty of question marks as the crop enters its key reproductive phase. Farm Futures survey of growers found potential for a 3.369 billion bushel crop, which could double carryout in the year ahead. But only a modest reduction in yields could tighten the balance sheet quickly. Weather in key states suggests potential for lower yields, but much could change between now and harvest.
With futures prices so far below Revenue Protection base price guarantees, most growers have a little time to wait for rallies. In addition to worries about the size of the U.S. crop, two other questions will be key. Neither will be answered soon.
One issue is the competition. How will growers in South America respond to lower prices? Initial forecasts show growers in Brazil planning more expansion. The impact of falling soybean prices has been muted somewhat by the weakening value of their currency, the real, which lowers the cost of inputs for growers. Another issue is whether Brazil’s lagging infrastructure can ship out any more beans.
The other question for the market comes from China. A hard landing from a weakening economy likely would decrease demand for imported beans, and threaten the global economic recovery as well. Recent data suggests Chinese growth prospects are improving, or at least not getting any worse.
Wheat is the Rodney Dangerfield of the grain market right now: It can’t get any respect. Strong exports in the first two months of the marketing year may be winding down. Customers from emerging markets like China and Brazil have been buying, but that demand looks limited. Regular customers, like Japan, will keep on buying U.S. wheat, but other countries, especially those in the Middle East and North Africa, are buying whatever is cheapest. Right now that’s not U.S. wheat, which is priced 75 cents a bushel higher than the competition delivered out of the Gulf.
Cheap corn also holds wheat back, decreasing feed demand not only here but around the world as well. Other wheat exporting countries appear to be harvest good crops, too. Most regions have had a problem or two, but haven’t suffered any major crop failures that would lure demand back to the U.S.
Basis gains were good in July, but weakened in the first part of August. Farmers won’t need to dump wheat to make room for fall crops for a while, but this year’s “gut slot” pressure could build if corn and soybeans yields and acres hold up. Without a production threat to those crops, the outlook for wheat looks limited, too.
