News of record large corn crop offset by feed, ethanol usage
U.S. farmers produced a record-high 13.9 billion bushels of corn last year, but demand from livestock and ethanol producers is helping support corn prices and may provide modest selling opportunities for producers in the coming months, according to a Kansas State University agricultural economist.
“The markets responded positively to the corn data,” said Dan O’Brien, crops marketing specialist with K-State Research and Extension, referring to gains posted in corn futures after the Jan. 10 release of the U.S. Department of Agriculture’s Crop Production 2013 Summary (http://www.nass.usda.gov/Publications/Todays_Reports/reports/cropan14.pdf). “The corn production number (at 13.9 billion bushels) came in at the low end of market analysts’ estimates. That coupled with (USDA’s estimated) increases in feed and ethanol usage had the effect of lowering projected carryout stocks.”
Corn for March 2014 delivery at the CME Group closed up 19 3/4 cents at $4.31 3/4 bushel on Jan. 10 after the report was released. December futures closed up 17 cents at $4.58 1/4.
“We still have a very large crop, but this demand adds a bit of support and might give producers at least marginally attractive selling opportunities,” said O’Brien, who is based at K-State’s Northwest Research-Extension Center in Colby.
USDA reported corn carryout at 1.631 billion bushels, which was also below analysts’ expectations, O’Brien said, noting that although USDA did not change its average projected corn price of $4.40 per bushel, the data reflected a tightening of the stocks-to-use ratio.
The 13.9 billion bushel corn estimate for 2013 is 29 percent higher than production in 2012. USDA also estimated the average U.S. yield at 158.8 bushels per acre, down 1.6 bushels from earlier USDA estimates, but up 35.4 bushels from the 2012 yield of 123.4 bushels.
The USDA cut its estimate for 2013 U.S. grain sorghum production and ratcheted down its ending stocks and stocks-to-use ratio, which should support grain sorghum prices—particularly important in Kansas, the largest U.S. grain sorghum producer, the economist said.
The report estimated 2013 U.S. grain sorghum production at 389 million bushels, down 6 percent from its December estimate, but up 58 percent from the drought-ravaged 2012 crop.
Last year’s U.S. soybean production was pegged at 3.29 billion bushels, up from the USDA’s last estimate and up 8 percent from 2012. That makes the 2013 crop the third largest on record. The average yield per acre was estimated at 43.3 bushels, 3.5 bushels above the previous year’s average. The number of acres harvested was down slightly from 2012 to 75.9 million acres—the fourth highest on record.
“What we’re seeing in soybeans is strong exports for the time being,” O’Brien said of the response of soybean futures to the USDA data.
As competitors to U.S. soybeans on the global market, Brazil and Argentina’s crops will be very influential in the coming months, he added, noting that March soybean futures closed up 4 3/4 cents at $12.78 1/2 on Jan. 10 after the report’s release, while new crop November 2014 futures closed down 1 3/4 cents at $10.99 3/4 a bushel.
“Soybean prices are expected to be pushed lower by U.S. production and South American production as we move further into 2014,” O’Brien said.
Also in a Jan. 10 report, USDA estimated that U.S. winter wheat seeded area for harvest in 2014 was 41.9 million acres, down 3 percent from 2013. The data included estimates for hard red winter wheat seeded area—the class grown in Kansas—at 30.1 million acres, up 2 percent from 2013. Soft red winter wheat seeded acreage was down 16 percent to 8.44 million, and white winter wheat seeded acreage was down 3 percent to 3.39 million.
“The seeded acreage number for winter wheat was down,” O’Brien said of USDA estimates. “Typically that would be positive (for prices) but USDA estimated less wheat being fed to livestock and raised wheat ending stocks to 608 million bushels.”
“That means ending stocks-to-use went up to 25.3 percent, but it’s still the tightest wheat stocks-to-use figure in several years,” the K-State economist said. “The market is focused on the increase in domestic supplies and stocks relative to use since the USDA’s December reports. The supply-demand balance sheets projected growing stocks relative to use compared to a month ago.”
On Jan. 10 after the report, HRW wheat for March delivery closed at $6.26 a bushel, down 13 cents from the previous day’s close. July closed at $6.20 1/4 a bushel, down 12 3/4 cents.
“The accumulation of stocks here and abroad is having a negative impact on projected prices,” O’Brien said, adding however, that the smaller winter wheat acreage number may curb the downward potential of prices later in 2014.
One thing O’Brien is watching closely is the outlook for another year of drought in key wheat-growing areas. He referred to a Dec. 31 report, www.cpc.ncep.noaa.gov/products/expert_assessment/mdo_summary.html, which indicated that drought conditions could persist in western Nebraska, western Kansas, western Oklahoma and west Texas.
“There’s not complete confidence that we’ll avoid another year of drought in the U.S. Great Plains region. That leaves a lot of uncertainty in the wheat market,” he said.
More information about agricultural economics, including information from O’Brien is available at www.agmanager.info.