From the June 01, 2012 issue of Futures Magazine • Subscribe!

Will the US swim in corn and search for beans?

Corn yield holds the answer

New-crop corn yields will set the price trends for 2012-13. That’s obvious, but with huge planted corn acreage and still-strong demand, it’s especially true in 2012.

If 2012 growing conditions are excellent and we see a national average corn yield of 168 bu. per acre, there’s little doubt the national average cash corn price will drop below $5. But, if the rest of the growing season is poor and the national average yield is 150 bu. per acre (the past two crop’s national average yields), Pro Farmer expects a $6-plus national average cash corn price. And that’s an average — made up of lower and higher prices. The price high for new-crop corn futures under the “poor” scenario undoubtedly would clear the $7 level for at least a short period of time.

That’s because of a crop that’s already in the bin. A South American drought likely cut the 2011-12 Argentine corn crop to less than 20 million metric tons, compared to 2010-11 production of 23 million metric tons. In a good year, the Argentine corn crop is a touch bigger than South Dakota’s corn crop, and not quite as big as a good Indiana corn crop. Nonetheless, Argentina currently is the second-largest corn exporter in the world. And in a world hungry for feed grains, the market pays very close attention to production in the South American exporting country. 

Argentina’s short corn crop this year already has increased demand for old-crop U.S. corn, but it has a residual effect as well. Argentine corn exporters have made a living “filling the supply gaps” from the U.S., which means some of Argentina’s old-crop corn slips into the U.S. new-crop marketing year. That’s why a short crop in Argentina will help support bigger new-crop U.S. corn exports.

And to get a clear picture of the year ahead, we also must take one more look back to the 2011-12 marketing year. Old-crop carryover really represents the supply-side cushion for the year ahead. USDA’s current estimate of 801 million bu. (and Pro Farmer’s estimate of 706 million bu.) are probably too low. Yes... too low. Admittedly, the outlook gets “cloudy” at this point.

If no more bushels were added to the 2011-12 U.S. feed supply from this point forward, Pro Farmer would expect even higher old-crop corn prices just to slow use enough to keep 700 million to 800 million bu. of corn “in the bin” at the end of the 2011-12 marketing year. In reality, a lot of bushels will be “added” to the old-crop supply.

Soft red winter wheat harvest will be earlier than normal and yield potential looks to be very good. That will increase the amount of wheat used for feed in corn’s 2011-12 marketing year, displacing corn used for feed.

Also, early planting and emergence of the 2012 corn crop means there is a chance that about 900 million bu. of corn planted in 2012 could be harvested before Sept. 1. If that corn is used as feed or exported, it will offset use of 2011-crop corn. And if it isn’t used, it still will be included in the Sept. 1 corn stocks tally.

And Sept. 1 corn stocks are the official old-crop carryover. USDA’s National Ag Statistics Service (NASS) has proven the past two years that corn is corn... it does not matter in which year it was planted. That could inflate the 2011-12 corn carryover... which inflates 2012-13 beginning stocks... which makes the 2012 Supply & Demand balance sheets a complete mess (“Making sense of corn,” below).

Based on conditions in early May, Pro Farmer is leaning up from the average scenario to excellent. If the early growing season weather pattern that brought generally normal to above-normal temperatures and ended a would-be drought in the northern Corn Belt continues through mid-summer, yield expectations will rise and pressure on new-crop corn prices will build.

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