Evaluating current corn use projections

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Source: John D. Anderson, Deputy Chief Economist, American Farm Bureau Federation

Corn Production Of course, the big news last week was the Friday release of the November World Agricultural Supply and Demand Estimates (WASDE) report, providing a much-needed data fix for those of us going into withdrawal after two months of no new WASDE.  Corn estimates came in very close to pre-report estimates, though not in exactly the way that the pre-reports had envisioned.  Total production is now pegged at 13.989 billion bushels.  The average trade estimate had put production at a few million bushels over 14 billion.  USDA’s figure was tantalizingly close to that threshold but couldn’t quite step over it.  Still, if this number holds, it will be a record level of production.  So the surprise, if you can call it that, was not in the aggregate production figure – USDA’s number was very close to the pre-report average – but in how that figure was achieved.  Planted acreage was reduced by over 2 million acres from the September estimate, with an attendant reduction of 1.9 million in harvested acres.  More than offsetting this decline in acreage, though, was an increase in the national average yield from September’s estimate of 155.4 bushels per acre to November’s estimate of 160.4. 

It is worth recalling here just how much trouble the corn crop appeared to be in early this year.  In the Crop Progress report for week 19 this year (the week ended May 12), the corn crop was reported to be just 28% planted.  This was the slowest pace of planting going back to at least 1980.  Despite that poor start, this year’s crop appears set to exceed the unadjusted 20-year trend yield by a little better than 2%.  To be sure, the concerns generated by late planting are legitimate.  The probability of encountering all sorts of yield-reducing pressures – particularly heat stress during pollination and/or early killing frosts – is increased by late planting.  So maybe this year we were just lucky: temperatures were almost ideal during pollination in much of the Corn Belt, and damaging cold weather mostly held off until the crop was mature.  The bottom line is that what started as a touch-and-go situation with the corn crop is ending in record production.  What a turn from 2012, when an almost ideal early season situation ended up as a disastrous harvest.

With the increased availability of corn for the 2013/14 marketing year, USDA is projecting a substantial increase in corn use.  Total use is projected to be up by 16.6%, with increases of 92% and 20% for exports and feed/residual use, respectively.  How realistic are these year-over-year (y/y) changes in use?  They appear to be feasible, at least in the mathematical sense; but they would be essentially unprecedented.  Going back to the 1975/76 marketing year, the largest y/y change in exports was 64% in the 1994/95 marketing year.  Now, one might argue that this year’s change only looks remarkable in percentage terms because it is a change from a pretty small base (just 731 million bushels), and that is certainly true.  Even in an absolute sense, though, the projected increase in corn exports stands out.  The projected 669 million bushel increase in exports would also be the second largest volume increase since 1975/76 (again second to 1994/95).  There are good arguments for an unprecedented increase: global demand remains strong and now that the US will have corn to sell, international customers may well return quickly.  As large as the projected rebound is, it would still leave US corn exports at a historically low level.  In that context, then, the export figure looks doable, though if it occurs it will be a remarkable turnaround in a global corn market that is arguably considerably more competitive than it was before this commodity price boom began.

Feed and residual use is a little harder to get a handle on, mostly because the residual component is, virtually by definition, hard to figure out.  As noted, the projected y/y increase in the feed and residual use category is 20%, or 867 million bushels.  In either percentage or absolute volume terms, this would be the largest y/y increase in this category going back at least to 1975/76.  Modest increases projected for broiler and pork (and milk) production certainly argue for higher feed use but probably not the sharply higher figure now projected.  This leaves us, as always, scratching our heads about what “residual” means this year.

The Markets

After a very good fall rally, fed cattle prices slipped a little last week.  At $130.93, last week’s 5-Area weighted average price was off about $1 from the prior week.  Boxed beef prices also slipped some last week.  For the week as a whole, the Choice cutout was little changed from the prior week; but from Monday to Friday, the cutout moved steadily lower, dropping almost $3 over that period.  In last week’s National Feeder and Stocker Cattle Summary, yearling prices were called mostly steady, though prices were noted to be weaker at the close of the week.  Calf prices were higher, especially on calves suitable for fall grazing programs.  Southeastern calves were called steady to $5 higher. 


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