Corn crop looks good, maybe too good
For the second year in a row, we are in the middle of September hoping that the late-planted corn crop will mature before frost strikes. Last year warm weather held, and the yield came in at 153.9 bushels/acre, the second highest national corn yield on record.
If the September WASDE (World Agricultural Supply and Demand Estimates) is correct, the 2009 US corn yield will come in at 161.9 bushels/acre, nosing out 2004â€™s 160.3 bushels/acre for a new record. With this level of production and increased demand, the USDA (United States Department of Agriculture) projects ending stocks for the 2009 crop year marginally up from last year. They also project a season average price of $3.05 to $3.65, well below the $4.08 estimated for the 2008 crop year.
That being said, we have to remember that the crop is not in the bin and a lot can happen between the September 11 WASDE estimate and harvest. If we have a normal frost date -- earlier than is needed for this crop -- the yield will fall, tightening up stocks and sending prices back up. In that case, recent prices could be the season low.
Higher prices could put continued pressure on the poultry, livestock, and dairy industries. Ethanol plants would feel some price pressure as well.
On the other hand, if frost holds off like it did last year, the September WASDE production and yield estimates could be right on target or even surpassed by larger numbers when combines transfer corn on-the-stalk into the nationâ€™s trucks and wagons. With a large crop, however, the price estimates could be very optimistic. As of this writing, Southern Minnesota-Northern Iowa local-elevator corn prices are some 50 cents below the USDA midrange price estimate for the 2009 crop year.
As traders become accustomed to improved corn genetics and late frost dates, it is not inconceivable that we could see prices in LDP (Loan Deficiency Payment) territory during this crop year. This is especially true if the planting schedule next spring is closer to the 10-year average and demand expectations turn out to be too optimistic.
A year ago, the talk was about a new price plateau. LDPs for corn and soybeans were thought to be a thing of the past. It was expected that the demand for grains would outpace the supply as the result of world-wide population increases, a growing middle class in developing countries, and grain agriculture's trump card -- Congressional ethanol mandates.
Some also implied that increased input costs would set a floor on prices -- not exactly grain agriculture's experience during the 1998-2001 period when prices were well below the cost of production.
In part, the September WASDE is able to avoid a sizeable reduction in its estimate of corn prices for the 2009 crop year by matching the increased production of corn with increased demand, keeping the ending stocks fairly constant. Feed and residual is up by 50 million bushels from last month's estimate and 100 million bushels from the projected 2008 crop year totals.