Tuesday, January 22, 2013

Good on Grain: Key Element in Corn Price Decline is Size of 2013 Crop

AgFax.Com - Your Online Ag News Source


The drought-reduced U.S. corn crop of 2012 suggested that corn prices might behave in a pattern generally described as “short crops have long tails.”

The phrase depicts the expectation of rapidly rising prices that peak near harvest time, decline in an unspecified pattern over the next several months, and return to pre-drought levels as early as the following marketing year. The decline in prices is expected as a result of a slowdown in consumption and a return to normal production.

Corn prices this year have generally followed the expected short-crop pattern as the expected consumption and supply responses continue to unfold. The pace of consumption of U.S. corn so far in the 2012-13 marketing year has been slower than that of last year.


However, the slowdown has been modest and has come primarily in the export market and in the production of ethanol rather than in the domestic feed market as earlier expected. The rapid pace of domestic feed and residual use of corn revealed on January 11 breathed some life back into old crop corn prices even though the pace of exports and domestic processing remain low.

In addition to a slowdown in consumption of U.S. corn, the USDA projects another large corn harvest in Brazil in 2013 and a rebound in production in Argentina following the drought reduced harvest of 2012. While likely large, the size of those crops is yet to be determined and recent dryness in some areas has raised some yield concerns.

Some of the elements that contribute to the price decline following a short crop are clearly occurring.

The final element, and likely the most important element, of the expected price decline is the size of the 2013 corn crop.

The question is whether production will fully rebound from the extremely low level of 2012 as it has following other droughts over the past 50 years. Production prospects begin with expectations for planted acreage. Planted acreage totaled 97.15 million acres in 2012, 5.219 million more than planted in 2011 and 3.628 million more than the recent peak in 2007. For the most part, analysts are reporting expectations of even larger acreage in 2013. Those expectations appear to be near 99 million acres. The increase would come from an overall increase in row crop acreage as some land has come out of the Conservation Reserve Program and from reductions in the acreage of less competitive crops.

Planted acreage of 99 million would point to acreage harvested for grain near 91.5 million acres under non-drought conditions. That would be an increase of just over four million acres from acreage harvested in 2012 when more than the usual amount of acreage was harvested for silage and abandoned. Such acreage would point to prospects for an extremely large crop in 2013. Early season acreage expectations, however, are often not a good forecast of actual acreage. Last year, for example, The USDA’s March Prospective Plantings report indicated intentions to plant 95.864 million acres of corn, nearly 1.4 million more than the average trade guess. Actual planted acreage exceeded early expectations by the trade by nearly 2.7 million acres.

The other consideration in forming production expectations is obviously expectations for the U.S. average yield. Most base their early yield expectations on an analysis of trend yield. Trend yield analysis, however, is not straight-forward. First, average yields over any time period reflect both changing technology and variations in weather conditions. A calculation of the true technological trend in average yields requires that yield observations be “corrected” for annual variations in weather conditions. Such correction requires the application of models that separately account for the yield impact of technology and weather. A failure to do so can result in a biased estimate of trend.

Following three consecutive years of low corn yields, a trend calculation that does not adjust for variations in weather conditions will understate trend yield for 2013. A second issue surrounding trend yield calculations is the length of the time period used to calculate the trend. Different periods result in different trend calculations. We continue to think that 1960 through 2012 is the correct time period for calculating the 2013 trend yield.

A second consideration for some in forming early yield expectations is the state of soil moisture going into the planting season. However, as learned again last year, the yield implications of those conditions are dwarfed by the impact of growing season weather. While current drought conditions are of concern, those conditions alone do not provide much information about 2013 yield prospects.

While prices for the 2013 corn crop are currently about $0.70 below the peak reached in September 2012, they are well above the level that would be expected if the 2013 crop reached its full potential. Next month, the USDA will release projections for the U.S. farm sector for the next 10 years. There will be a lot of interest in the 2013 corn acreage and yield projections contained in that report.

Tags: , , , , ,


Leave a Reply

Name and Email Address are required fields. Your email will not be published or shared with third parties.

Sunbelt Ag News

    DTN Livestock Close: Lean Hog Futures Rebound With Triple-Digit Advance4-16

    Doane Cotton Close: Strong Finish Despite Continued Dry Weather4-16

    “Agricultural Adventure” Educate Public on Modern Farming – DTN4-16

    International Buying and Selling a Balancing Act to Get the Best Deal – DTN4-16

    AFB Grain-Soybean Close: Corn, Wheat Fall, Beans Move Higher4-16

    AFB Cotton Close: Regains Losses and Then Some4-16

    AFB Rice Close: Higher After Relatively Wide Trade4-16

    DTN Cotton Close: Triple-Digit Old-Crop Gains4-16

    DTN Grain Close: New Highs In Soybeans; Corn, Wheat Fall Back4-16

    DTN Livestock Midday: Lean Hogs Show Strong Gains4-16

    DTN Grain Midday: Soybean Trade Remains Higher4-16

    AgFax Rice Review: Recent Rains Won’t Help CA Farmers; Japanese Varieties Grown in U.S.4-16

    DTN Cotton Open: Futures Trading in Green4-16

    DTN Livestock Open: Hog Contracts Under Pressure4-16

    DTN Grain Open: Commercial Buying Boosts Soybeans4-16

    Weather Woes Stretch from Iowa to Florida — DTN4-16

    Keith Good: Cold Snap on East Coast Troubling; Wheat Futures Up Again4-16

    Brazil’s Ports Remain Orderly with Good Luck, Favorable Conditions – DTN4-15

    Texas: Conservation Farming Meeting Weslaco, April 294-15

    Welch on Wheat: Cool Temperatures Hit Drought Stressed Crop4-15

    N.C. State University Leads Research into Kudzu Bug Host Preferences4-15

    Welch on Grain: Corn Planting in Line with 30 Year Average4-15

    Fertilizer Prices on the Rise but Still Lower Than Last Few Years4-15

    USDA: Weekly National Peanut Prices4-15

    Louisiana: Wildlife Field Day, Clinton, May 34-15

    Sign-Up Begins Today for USDA Disaster Assistance Programs4-15

    AgFax Cotton Review: Now’s a Good Time to Price New-Crop; Rains in Texas but Not Enough4-15

    DTN Fertilizer Trends: Rail Delays Affecting Prices in Upper Midwest4-15

    Shurley On Cotton: 80 Cents Is A Good Place To Start Pricing4-14

    Crop Progress: 3% of National Corn Crop Planted, Wheat Continues Decline – US-DA4-14

    Louisiana: Glyphosate Resistance Confirmed in Italian Ryegrass4-14

    Livestock: Rancher Raises Horns, Not Pounds for Rodeo Cattle – DTN4-14

    Good on Grain: Corn Consumption Continues to Exceed Projections4-14

    Rice Outlook: 2014 Prospective Plantings Up 16 Percent From Last Year4-11

    Rice Market: Prices Move Sideways but Down for the Week4-11

    Rice Crop Update: Texas 65% Planted; Delta Battling Wet Conditions4-11

    Rose on Cotton: ‘Buy the Rumor, Sell the Fact’4-11

    Texas: Multi-County Wheat Tour, Taylor County, May 24-11

    USDA Grain Outlook: Corn Export Prospects Increase4-11

    USDA Cotton Outlook: Global Stocks Continue to Rise4-11

    USDA Oil Crops Outlook: Record Soybean Acreage Heralds Upsurge for Stocks4-11

    USDA Wheat Outlook: Domestic Usage Down, Increased Ending Stocks4-11

    Crop Marketing: Sales Advised in Old-Crop Corn, Beans, Look for Rallies in Wheat, Cotton, Rice4-11

    Cleveland on Cotton: Waiting on Texas Rain as U.S. Carryover Adds Value to This Crop4-11

    Corn-on-Corn Planting Yields 25 Bushels Per Acre Less Than Rotation – DTN4-11

    Farmers Complain Rail System Gives Oil Shipments Priority Over Grain – DTN4-11

    Ethanol: RIN Generation Declines from 20134-11

    USDA: Peanut Price Highlights4-11

    Mississippi: Catfish Producer Meeting, Macon, April 304-11

    African Farmer Group Seeks Financial Self-Reliance4-11

    Corn Planting In South Further Delayed, More Talk Of Switching – AgFax4-11

    Who Really Owns Your Farm Data? – DTN4-10

    Implement Tires Earn Respect, New Technology – DTN4-10

    Brazil: Ag Ministry Raises Soybean and Corn Forecasts – DTN4-10

    WASDE Report Eases Fear of Low Crop Prices, Says Economist4-10

    Sunbelt Ag Events

     

    About Us

    AgFax.Com covers agricultural trends and production topics, with an emphasis on news about cotton, rice, peanuts, corn, soybeans, wheat and tree crops, including almonds, pecans, walnuts and pistachios.

      

    This site also serves as the on-line presence of electronic crop and pest reports published by AgFax Media LLC (formerly Looking South Communications).

        

    Click here to subscribe to our free reports.

      

    We provide early warnings and confirmations about pests, diseases and other factors that influence yield. Our goal is to quickly provide farmers and crop advisors with information needed to make better and more profitable decisions.

         

    Our free weekly crop and pest advisories include:

    • AgFax Midsouth Cotton, covering cotton production and news in Alabama, Arkansas, Louisiana, Mississippi, Tennessee and Missouri.

    • AgFax Southeast Cotton, covering cotton production and news in Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia.

    • AgFax Southwest Cotton (new for 2013!), covering cotton production and news in Texas, Oklahoma, Kansas and New Mexico.

    • AgFax West (formerly MiteFax: SJV Cotton), covering California cotton, alfalfa, tomatoes and other non-permanent crops in California's Central Valley.

    • AgFax Rice covering rice production and news in Arkansas, Louisiana, Mississippi, Missouri and Texas.

    • AgFax Peanuts, covering peanut production in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Texas and Virginia.

    • AgFax Southern Grain: covering soybeans, corn, milo and small grains in Southern states.

    • AgFax Almonds, covering almonds, pistachios, walnuts and other tree crops in California's Central Valley.

    • AgCom 101, providing guidance to ag professionals involved in social media.

    Our newsletters are sponsored by the following companies: FMC Corporation Chemtura Dow AgroSciences.

          

    Mission statement:

    Make it as easy as possible for our community of readers to find and/or receive needed information.

              

    Contact Information:

    AgFax Media. LLC

    142 Westlake Drive Brandon, MS 39047

    601-992-9488 Office 601-992-3503 Fax

    Owen Taylor Debra L. Ferguson Laurie Courtney

          

    Circulation Questions?

    Contact Laurie Courtney