Corn: Acres and Weather Matter
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.