Is USDA too optimistic on weather?
The USDA projections for supply and demand for corn show a buildup in ending stocks to 2.1 billion bushels by the end of the next, 2014-15 marketing year.
As Economic Research Service economist Mark Ash explained at a grain and oilseeds outlook session Friday, that would end several years of tight stocks, which are a key reason why prices have been high.
"A succession of bumper harvests worldwide may put an end to that trend in 2014-15," Ash said.
Since the USDA economists don't really know what worldwide weather will be, their approach has always been to assume normal weather.
When an audience member later questioned why USDA expects record corn yields, Ash replied that the department is using the same methods to project yields as it did last year.
"The trend is still the same. It's a weather-adjusted trend," Ash said.
Last year 13 states in the U.S. had record corn yields, Ash said earlier, but only two of those were in states that are the top 10 producers, the traditional Corn Belt.
Ash told his questioner that if weather this year has more normal rainfall and doesn't have unusually high temperatures, "yields in some of the major corn- and soybean-producing states are going to improve quite a bit."
It's that assumption of higher yields that has USDA boosting its corn production estimate for 2014 to 13.985 billion bushels, up from the 2013 level of 13.925 billion bushels. Throw in 1.4 billion bushels of ending stocks from the 2013 crop and a tiny 25 million-bushel import estimate, and USDA has the total supply of corn in the U.S. this fall at 15.491 billion bushels, well above the supply of 14.781 billion last fall.
Supply is only part of the price equation. USDA sees "steady but unspectacular" gains in domestic use of corn. And the ethanol portion of domestic use is expected to be flat.
The bottom line: the corn average price falling below $4 next year to $3.90 for the 2014 marketing year.
Wheat use for 2014-15 is projected lower with declines in feed and residual use as well as exports.
The soybean planted area (at 79.5 million acres) is projected higher than last year. But acreage gains are limited by reduced double planting and increased cotton plantings in the Delta. Even with increased domestic use and exports, soybean ending stocks are projected to hit the highest level in eight years--285 million bushels. And the price falls from this year's possible average of $12.70 a bushel to $9.65 a bushel in 2014-15.