Late-season corn market factors abound
Corn prices at this time of year are typically dominated by yield prospects of the U.S. crop with those prospects pretty well settled. This year, there is considerable uncertainty about U.S. production prospects as well as changing indications of corn consumption.
Production uncertainty stems from both acreage and yield considerations. For acreage, the USDA's National Agricultural Statistics Service (NASS) currently estimates planted acreage at 97.379 million acres. The Farm Service Agency report of prevented acreage released last week indicated prevented-corn acreage of 3.411 million acres. The estimate exceeded expectations and resulted in speculation that the NASS estimate might eventually be reduced. However, there has not been a close relationship between prevented acres and the change in the NASS estimate of planted acres from June to the final estimate. In 2010, for example, 2.1 million corn acres were reported as prevented, but the NASS final estimate of planted acres exceeded the June estimate by 320,000. In 2011, prevented acres totaled 3.01 million, yet the final NASS estimate of planted acres was only 346,000 less than the June estimate.
Beyond planted acreage, there is some uncertainty about potential acreage harvested for grain. While some insist on analyzing acreage harvested for grain as a percentage of acreage planted for all purposes, the nominal difference between the two is more informative. The difference rather than the ratio is more informative since acreage harvested for silage is nearly constant in years with good growing conditions (varied by only 400,000 acres from 2008 through 2010) while changes in planted acreage are motivated by demand for grain. The difference between planted acreage and acreage harvested for grain averaged only 6.8 million acres in 2009 and 2010, about 400,000 less than the previous five-year average. The difference increased to 7.95 million in 2011 and 9.78 million in 2012 as poor weather resulted in more acres harvested for silage or abandoned. This year, NASS estimates the difference at 8.244 million acres. There is potential for the difference to vary from that estimate, depending on how the growing season ends.
The NASS August forecast of the U.S. average corn yield of 154.4 bushels per acre was 3 to 4 bushels less than expected. The initial reaction was that the forecast would be larger in subsequent reports. However, weather conditions have become less favorable as large areas of the Dakotas, Minnesota, Wisconsin, Iowa, Missouri, and Illinois received less-than-average precipitation over the last 60 days and particularly over the past 30 days. While more seasonal temperatures in coming weeks will help advance maturity, the combination of warm and dry weather will likely result in declining crop condition ratings and yield expectations more in line with the USDA forecast.
The pace of corn consumption has also accelerated as the 2012-13 marketing year winds down. Based on weekly estimates of ethanol production, it appears that corn used for ethanol and coproduct production during the last quarter of the marketing year will be 40 to 45 million bushels more than used during the summer quarter last year. If so, use for the entire marketing year will exceed last week's USDA forecast by 30 to 35 million bushels.