More corn and soybean rationing?
The U.S. average corn yield was below trend value for three consecutive years from 2010 through 2012. The U.S. average soybean yield was below trend value in both 2011 and 2012.
The shortfall in corn yields resulted in declining year-ending stocks and higher prices in both the 2010-11 and 2011-12 marketing years. The small crop of 2012 required rationing of consumption and resulted in record-high prices for the 2012-13 marketing year. Consumption during that marketing year is currently estimated at 11.215 billion bushels, 1.312 billion bushels (10.5%) less than consumption in the previous year. Year-ending stocks are projected at 719 million bushels, only 6.4% of consumption during the year.
For soybeans, the shortfall in yields in 2011 resulted in higher prices and smaller year-ending stocks for the 2011-12 marketing year than those of the previous year. The small crop of 2012 resulted in sharply higher prices, rationing of consumption, and a further drawdown in year-ending stocks. Consumption for the year just ended is estimated at 3.094 billion bushels, 61 million (2%) less than during the previous year. Year-ending stocks are projected at 125 million bushels, only 4% of consumption during the year.
While the 2013 production season got off to a rocky start due to late planting in many areas, expectations into early August were for larger crops than in 2012, increased consumption during the 2013-14 marketing year, a buildup in stocks by the end of the year, and much lower prices than during the previous year. In the August 12 WASDE report, the USDA forecast a record corn crop of 13.763 billion bushels, a 1.46 billion-bushel increase in consumption, and year-ending stocks of 1.837 billion bushels (14.5% of projected consumption). The 2013-14 marketing year average farm price was projected in a range of $4.50 to $5.30 per bushel, compared to an average near $7.00 for the previous year. For soybeans, production was forecast at 3.255 billion bushels, 240 million more than the 2012 crop. Consumption was forecast to increase by 82 million bushels, and year-ending stocks were projected at 220 million bushels (6.9% of projected consumption). The 2013-14 marketing year average farm price was projected in a range of $10.35 to $12.35 per bushel, compared to an average of $14.40 during the previous year.
Expectations began to change in early August as hot, dry weather conditions developed across a broad swath of the production area. It appears that average precipitation across Indiana, Illinois, and Iowa in August, for example, was the lowest since records began in 1895. The average for July and August in those three states may have been the third lowest since 1895. The adverse weather conditions have resulted in lower yield and production expectations for both crops, raising concerns that consumption may need to be rationed again in 2013-14. Rationing, however, does not appear likely for corn. Assuming that the size of the market is near the USDA projection of 12.675 billion bushels and that year-ending stocks can be reduced to about 6% of consumption, the crop would have to be less than 12.7 billion bushels to require rationing. If harvested area is near the forecast of 89.1 million acres, the U.S. average yield would need to be less than 142.5 bushels to produce a crop smaller than 12.7 billion bushels. Some believe that the FSA estimate of prevent-planted acres points to less harvested area. If harvested area is only 88 million acres, for example, the yield would need to be lower than 144.3 bushels to require rationing. The USDA's August forecast was for a yield of 154.4 bushels.