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Good times roll, maybe through fall

On Friday USDA released more detailed analysis of its grain and oilseeds outlook for 2012 that shows an increase in corn exports this year but a lower, $5-a-bushel price for corn after this year’s crop is harvested next fall.

The $5 corn season average price was released February 13. On Friday, USDA economist Ed Allen of the Economic Research Service told the 2012 Agricultural Outlook Forum that “we’re expecting a significant decline for corn” prices. Compared to last year’s average of $6.20 a bushel, the projected price would be a decline of more than 20%.

That $5 price includes corn priced at better levels through futures and forward contracts, Allen said. “That implies cash prices even lower.”

USDA expects more corn this fall. It projects corn planting in the U.S. at 94 million acres, the most since 1944.  The agency looks for a big jump in crop acreage this year.

“We’re expecting most of that increase in area in the United States to be in corn and wheat,” Allen said.

As always, the USDA factors trendline increases in yields into its analysis. Allen said that’s actually the middle road between optimists who expect yields to rebound faster with current crop production technology and ample credit and pessimists who see difficult weather continuing as the climate changes.

The trendline yield for 2012 would be 164 bushels an acre for a nationwide average. It could be even better with favorable weather, Allen said.

Due to weather problems in the U.S. last summer and in Argentina this year, global corn stocks haven’t yet rebounded.

But the rest of the world isn’t sitting still.

“It’s not just the United States that has been responding to high corn prices,” Allen said.

“You have the spectacular response in Ukraine, which nearly doubled their production in 2011-12,” he said.

Even the best projections can quickly become outdated by real world events. Allen left his listeners with this list of key market movers to watch in 2012:

--South American corn and soybean yields. An 8 million metric ton drop in South American soybean supplies compared to last year is a key reason why USDA has projected almost no change in average U.S. soybean prices: $11.50 for 2012-13 versus $11.70 for the current marketing year. But it’s still too soon to know final South American yields, Allen said.

--Prices and weather ahead of U.S. planting, which will influence farmers’ decisions on how corn and soybean acreage shakes out.

--China’s soybean and corn imports, which are uncertain, Allen said. USDA is already forecasting a slight drop in soybean and cotton exports to China.

--Gasoline prices and fuel use in the U.S., as well as ethanol margins. Gasoline consumption is dropping in the U.S., not increasing, so “ethanol is fighting for an increasing share of a declining pie,” Allen said, noting that the ethanol industry currently has large stocks and negative processing margins.

--Global economic growth. The strength or weakness of the U.S. dollar and other currencies will also determine how U.S. exports do in an uncertain global economic climate.

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