Confident about grain

by Ron Sterk
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U.S. Department of Agriculture chief economist Joseph Glauber seemingly apologized for his initial 2013 projections of record large U.S. corn and soybean crops made at the recent U.S.D.A. Outlook Forum that were eerily similar to the projections made at last year’s Forum. As is now well known, 2012 production fell short of early forecasts, through no fault of Mr. Glauber. The key last year, again this year and every year when farming is concerned, is the weather.

“The outlook for 2013 is similar to last year’s outlook,” Mr. Glauber said in forecasting 2013 corn production at a record 14,530 million bus, up 35% from 2012 output, and soybean production at a record 3,405 million bus, up 13%. The forecasts are even higher than the initial projections made at last year’s Outlook Forum of 14,270 million bus for corn, which would have been record high, and 3,250 million bus for soybeans. But the “flash drought” of 2012 resulted in final corn production of 10,780 million bus, down 24% from the forecast, and soybean outturn at 3,015 million bus, down 7%.

U.S. 2013 wheat production was forecast at 2,100 million bus, down 7% from 2012 with about 50% of the hard red winter wheat crop in poor to very poor condition, Mr. Glauber said, adding that the crop “could face serious abandonment” unless adequate rain comes this spring.

The forecasts were made prior to two recent winter storms that left significant snowfall across much of the hard red winter wheat belt, although much more moisture will be needed throughout the spring to more significantly benefit the crop as soil moisture remains deficit across much of the region. The latest state crop bulletins have shown only slight improvement in winter wheat condition ratings.

Despite lingering drought in the Central plains, conditions in the eastern Corn Belt have “improved a lot,” Mr. Glauber said, with the 2013 projections largely dependent on “normal” weather and a return to near trend yields.

“I lean toward a lot better weather than last year,” said David Salmon, president of Weather Derivatives, a Belton, Mo., agricultural and energy weather service, in an interview after the Outlook Forum. “The drought continues to shrink, but a 14.5 billion bu corn crop might be high. I think 13.5 billion bus is more realistic.”

In comments accompanying its recent outlook projections, the U.S.D.A. said, “The 2013-14 outlook for grains and oilseeds reflects another year of large plantings supported by strong new-crop prices.
Prospects for high net returns and crop insurance revenue coverage support combined 2013 area for wheat, corn and soybeans very near last year’s 30-year high.

“Corn plantings are projected down slightly on the year, but production is expected to be record high with more acres harvested for grain and a rebound in yields. Feed and residual use rises sharply with the larger crop. Weak gasoline consumption limits the recovery in corn used to produce ethanol and strong foreign competition tempers the rebound in exports. Corn ending stocks are projected to more than triple, pushing prices sharply lower.”

In its initial 2013-14 outlook, the U.S.D.A. projected total corn supply at 15,187 million bus, up 28% from 2012-13, based on beginning stocks of 632 million bus, production of 14,530 million bus and imports of 25 million bus.

Total corn use in 2013-14 was projected at 13,010 million bus, up 16% from 2012-13, including feed and residual use at 5,400 million bus, up 21%, use for ethanol at 4,675 million tonnes, up 4%, food, seed and other industrial use at 1,435 million bus, up 3%, and exports at 1,500 million bus, up 67%.

“Soybean planted area is projected slightly higher than last year with favorable net returns, increased double cropping and reduced cotton plantings,” the U.S.D.A. said. “Soybean supplies are projected to increase as higher production more than offsets lower beginning stocks and imports. Soybean ending stocks are projected to rise from the exceptionally low level projected for 2012-13 as competition from South America limits potential export gains.”

The price paid to farmers for corn was projected to average $4.80 a bu in 2013-14, down 33% from the current year. The average soybean price was projected at $10.50 a bu, down 27%, and the all wheat price at $7 a bu, down 11%.

“Futures, cash and farm-level prices for wheat, corn and soybeans are all expected to fall in 2013-14 as record U.S. corn and soybean production push global supplies to new records,” the U.S.D.A. said. “Strong global demand for grains and oilseeds, however, keep prices well above those of a decade ago.”

But all that depends on the weather.

Initial projections for 2012 average U.S. corn yield was 164 bus an acre, and for soybeans 43.9 bus an acre, both near the U.S.D.A. long-term trend levels. But the drought slashed the final corn yield to 123.4 bus an acre in 2012 and trimmed the soybean yield to 39.6 bus.

For 2013 the U.S.D.A. projected the average corn yield at 163.6 bus an acre and the soybean yield at 44.5 bus, again back to near trend levels.

“I would say there is an 80% chance that we not have a repeat of last year,” Mr. Salmon said. “But there is at best only a 40% chance that we will have ‘normal’ weather.” He noted that the “trend” is not to have back-to-back years of drought, which hasn’t occurred since the 1950s, but that there still would be dry “pockets.”

Mr. Salmon said the National Weather Service in its seasonal outlook in late February called for hot weather again this summer.

The U.S.D.A. in its weather comments from the Outlook Forum suggested the potential for “post-drought drag” on corn and soybean yields the following year (2013) was not statistically significant.

“The overall results point to the dominance of summer weather in the determination of corn and soybean yields,” the U.S.D.A. said.
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