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Corn: Acres and Weather Matter
What a difference a few months make. Back in October, the corn market was assuming carryout near 2 billion bushels. Some prophesied price outlook of doom and gloom, forgetting that low prices cure low prices. Demand picked up for $4.00 corn, and in just a matter of months, enough corn was consumed that carryout went from 2 billion bushels to the most recent USDA data of 1.456 billion bushels. THAT, along with the black swan event of Ukraine’s political situation, is what allowed for the recent near-$1.00 price rally in corn.
So now we sit at a crossroads: Carryout at this 1.456 billion-bushel number means that corn acres this spring and weather throughout spring and summer absolutely matter. The market will trade the March 31 planting intentions report over the coming weeks, and there are still many voices of discrepancy regarding what that report will reveal. Some feel that corn acres will be down substantially, while others argue it will only be slightly lower than last year. Let’s take a closer look at both scenarios. That way you’ll be better prepared for possible market reactions following that March 31 report, when the market instead turns its focus to weather, and ultimately potential corn yield.
Last year’s numbers:
During the 2013-14 crop year, according to the USDA, U.S. farmers planted 95.4 million acres of corn: 87.7 million acres were harvested (92% of the planted acres), and final yield was 158.8 bushels/acre. This allowed for a total crop of 13.925 billion bushels. Total supplies from last year means you need to add 13.925 billion bushels along with the carry-in number from the previous year, which was 821 million bushels. Lastly, you need to also add imports of 35 million bushels. Adding these three numbers together gives you a total supply for 2013-14 of 14.781 billion bushels.
Total use last year, consisting of ethanol, feed, seed, and exports was 13.325 billion bushels. If you take the difference between a supply total of 14.781 billion bushels and subtract the total use number of 13.325 billion bushels, that leaves you with the ending stock number, which is 1.456 billion bushels.
Keep in mind: Anytime the market perception is that corn carryout is getting closer to a lower number, like 1 billion bushels, the market panics, and higher prices result. In the past few years, this has meant prices closer to $7.00 or $8.00!
Looking at 2014-15, Scenario 1: U.S. farmers plant 4 million less acres of corn than last year. If 4 million less acres of corn are planted, then that planted number comes in at 91.4 million acres. If you use 92% ratio of planted acres to harvested acres that puts harvested acres at 84.08 million acres.
84.08 million acres x 150 bu/acre yield = 12.612 billion bushels.
12.612 billion bushels (+35 million bushels for imports + 1.456 billion bushels carry-in) = 14.103 billion bushels of total supply.
Assuming total supply of 14.103 billion bushels – 13.325 billion bushels of demand = 778 million bushels. A number this small for carryout would be unprecedented and would allow for $7.00 to $8.00 corn easily.
84.08 million acres x 165 bu/acre yield = 13.873 billion bushels.
13.873 billion bushels (+35 million bushels for imports + 1.456 billion bushels carry-in) = 15.364 billion bushels of total supply.
Assuming total supply of 15.364 billion bushels – 13.325 billion bushels of demand = 2.039 billion bushels. A number this large for carryout would be equivalent to market assumptions last fall, and $4.00 corn prices will result.
Looking at 2014-15, Scenario 2:
U.S. farmers plant 94 million acres of corn this spring, down just 1.4 million acres from last spring. This represents entirely different pricing possibilities. Assuming 94 million acres, and using 92% ratio of planted acres to harvested acres, that puts harvested acres at 86.48 million acres.
86.48 million acres x 150 bu/acre yield =. 12.972 billion bushels
12.972 billion bushels (+35 million bushels for imports + 1.456 billion bushels carry-in) = 14.463 billion bushels of total supply.
Assuming total supply of 14.463 billion bushels – 13.325 billion bushels of demand = 1.138 billion bushels. A number this small makes for good talk of higher prices, because traders get nervous if carryout approaches the 1 billion-bushels carryout number. A perception of carryout like this would allow for $6.00 corn easily.
86.48 million acres x 165 bu/acre yield = 14.269 billion bushels.
14.269 billion bushels (+35 million bushels for imports + 1.456 billion bushels carry-in) = 15.760 billion bushels of total supply.
Assuming total supply of 15.760 billion bushels – 13.325 billion bushels of demand = 2.435 billion bushels. A number this large for carryout would be greater than market assumptions last fall, and sub-$4.00 corn prices would be the result.
The bottom line:
2014-15 grain marketing has the potential for much volatility, and it is imperative that you plan for different scenarios all spring and summer long, to help you stay on top of marketing. Doing so will allow the best opportunities to capture the best pricing possible.
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