Steve’s Market Minute
Watch for USDA upcoming yield estimates and how crop prices react
There has been more than a small amount of frustration amongst corn growers this summer as new crop corn prices seem to be lazy to react to weather pressure and market events which one might have expected would rally the market. The reality of the situation is that the current expectations for 2023’s corn crop size is so big, that in spite of some weather problems in some areas the current projections for this year’s corn crop are so large that prices don’t need to react to small pressures. The question for Ontario corn growers is, whether or not the projections are right?
The good news for grain producers is that 2023 is not an unusually large corn crop. The current USDA estimate for seeded acreage in the United States this crop year is 94.1 million acres. Compared to 2022’s 88.6 million acres it looks big, but it’s virtually in lock step with the 93.3 million planted in 2021. What is substantially different about the 2023 corn crop is a value hidden down at the bottom of the supply and demand spreadsheet in a place where most of us get distracted and quit reading before we get there: “Ending Stocks”. Right now the USDA is forecasting a 2.2-billion bushel carry out of this year’s corn crop into harvest of 2024, and that value has put a significant weight on prices as they have attempted to bounce.
A 2.2-billion bushel corn carry out, or “ending stocks” which is currently being forecast for this year’s crop, is massive.
There has only been one year in the past 10 when that much corn was still in storage across the U.S. when we reacted to the beginning of the next year’s harvest, and that was 2016’s corn ending stocks in September of 2017.
Typically U.S. corn carry out ranges in the 1.3-billion to 1.5-billion bushel range. By comparison, 2021 U.S. corn ending stocks were 1.377-billion bushels and 2022 anticipated corn ending stocks which will become official next month, will be 1.402-billion bushels. The fact that the old crop corn surplus is only two-thirds of what we expect to see left over from this year’s crop explains why we’ve seen much more dramatic price swings in old crop corn prices and much less volatility in new crop.
For farmers who have been watching American weather over the course of this year’s growing season, the fact that new crop corn prices are reluctant to react to the weather headlines seems disconnected.
We’ve seen extended periods of extreme heat across a large portion of the central and southern U.S., and significant drought in key corn producing areas like Illinois, Iowa, and Missouri. Those severe weather issues have resulted in consistently low crop ratings in the USDA’s weekly crop progress reports to the point that by mid-July, the portion of this year’s American corn crop rated as either good or excellent was 10 % lower than on the same date last year, and yet 2023 corn production estimates have stayed high, and prices have remained flat. The problem is acres.
In the spring of 2022. U.S. farmers planted 88.6 million acres of corn, and last fall they harvested 79.2 million acres of that crop for grain. At first glance, not harvesting 10 % of a corn crop seems like a big number, but upon further examination, there are two things which make up the difference between planted and “harvested” acres. Abandonment, (simply wasn’t worth harvesting), and the corn which was cut for fodder or silage.
In an area like Ontario where we have a large and vibrant livestock business, the reminder that a significant portion of the corn crop gets fed as silage is not a surprise. What’s gets a little weird, and is going to need some review is how the USDA has “number managed” the 2023 corn crop over the past couple of monthly reports.
In their June monthly supply and demand estimate, the USDA forecasted that American farmers have planted 92.9 million acres of corn this spring and would likely harvest 84.1 million acres of it for grain this fall.
In the July supply and demand estimate, the USDA raised corn planting to 94.1 million acres and raised the harvested acreage forecast to 86.3 million acres.
It might sail past the audience’s attention at first, but how did they raise planted acres by 1.1 million, but raise harvested acres by 2.2 million acres? That’s a manipulation of numbers which create a bigger potential 2023 grain corn harvest but since there is no reason to believe that bigger corn acreage would lead to less requirement for silage/fodder corn, it’s likely to get adjusted back down in subsequent USDA reports.
The key number to keep an eye on in the corn market is estimated yield potential for the 2023 crop.
The summer news has been full of heat and drought related problems across the central U.S., which should make it harder for a corn plant to reach its full yield potential. Anything that drops this year’s average corn yield below 175 bushels per acre will make the total production smaller than what we saw in 2021. Analysts started out with a 181 bushel per acre yield estimate last winter before the crop was planted, and weather circumstances had shaved that back to 177.5 by early July.
I would stop short of accusing the USDA’s analysts of being incorrect or misleading the market, but I do think that they have had a consistently optimistic view of how well this year’s crop might turn out. As we get closer to harvest, the accuracy of yield estimates only improves.
