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Weather hangs over USDA price projections

At the end of his talk about the outlook for grain and oilseed prices Friday, USDA economist Pete Riley listed the usual caveats that show that projections aren't really predictions.

There's China. Will that country still increase soybean imports? What about corn if it's cheap? Will we regain the market share we lost in corn exports after the 2012 drought, one that has Brazil slightly outpacing the U.S. in corn exports?

Then Riley blew up the type size for the biggest uncertainty of all on his slide: WEATHER. That drew laughter from a packed meeting room at USDA's annual Agricultural Outlook Forum in Arlington, Virginia.

"The big question is weather," said Riley, who works for USDA's Farm Service Agency.

A year ago at this time, USDA projections also showed a big crop and cheap corn. They're doing it again for 2013.

As Chief Economist Joe Glauber said on Thursday, planting 96.5 million acres (and harvesting 88.8 million), with an average yield of 163.6 bushels an acre is likely to result in an average price for that crop of $4.80 a bushel in the marketing year following harvest.

It's a dramatic decline from $7.20 a bushel for the 10.78-billion bushel corn crop harvested last year.

But, as USDA Agricultural Meteorologist Brad Rippey pointed out Friday, "There's very little relationship between drought this time of year and yield potential for corn."

According to economist Riley, even with poor weather that keeps yields to a national average of 154 bushels an acre, corn prices would average $5.80 a bushel. If the nation has a truly bountiful crop, averaging 170 bushels an acre, the 2013-14 price average for corn would be $4.20 a bushel.

Part of the reason for USDA's less-than-bullish view of corn prices is that its economists don't see ethanol production or exports rebounding this year to the levels before the drought. That modest demand and what would be a record 14.53 billion-bushel harvest, leads to breath-taking ending stocks in August of 2014 of 2.18 billion bushels of corn. That's three times the drought-shrunk stocks of 632 million bushels next August, and almost twice the ending stocks from the 2010-11 marketing year.

Exports are part of the reason for this.

"The world market has changed. Our very high prices have led to loss of market share,"  Riley said.

Not only are Brazil and Ukraine taking some of that corn export market, so are countries that rarely export much, including India, he said.

The result is that the projected exports of 900 million bushels from the U.S. 2012 crop will be the lowest share of global corn shipments in Foreign Agricultural Service records going back to 1960, Riley said.

USDA's current projection for exports from a big 2013 crop have them bouncing back to 1.5 billion bushels, slightly less than after the 2011 crop but still short of 1.8 billion bushels sold from the 2010 crop.

"This is an interesting case, and we see some recovery, but not next year. It might be a longer-term recovery," Riley said.

USDA also has a forecast for corn use by ethanol plants that isn't bullish.

Two years ago, the ethanol industry was using more than 5 billion bushels of corn from the 2010 and 2011 crops. Last year's drought cut ethanol's grind of corn to 4.5 billion bushels. Even a record crop from 2013 will bring ethanol's corn use (which includes distillers' grains as well as fuel) up to 4.675 billion bushels.

"We can't see much of a rebound . . . because we have a gasoline problem," Riley said.

Gasoline use is declining, not growing, in the U.S., which "reduces the potential pool for ethanol."

Miles driven by U.S. vehicles peaked in 2007, he said. The causes are many: recession and slow recovery, changing demographics (older people drive less) and more fuel-efficient cars and trucks.

USDA's expected changes in soybean production and prices aren't quite as breathtaking as the corn outlook, partly because the crop wasn't hit as dramatically by last year's drought. The USDA Outlook has planted acres virtually unchanged -- 77.5 million acres this year vs. 77.2 million in 2012. Yields are projected at 44.5 bushels an acre, up from last year's 39.6 bushels. Slightly fewer 2013 harvested acres would produce 3.4 billion bushels, about a 400 million-bushel increase over the 3 billion-bushel 2012 crop.

U.S. soybean exports are projected to rebound from 1.345 billion bushels from the 2012 crop to 1.5 billion bushels after 2013. But with more competition from a better South American crop than a year ago, prices are projected to fall from the $14.30-per-bushel average for the 2012 crop to $10.50 a bushel.

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