'Tis Only My Opinion!
September 2013 - Volume 33, Number 9
Outlook for Corn & Soybeans - 2013
World Production of Corn and Soybeans
In the last crop year 2012-2013, the United States provided 32.1% of world corn production according to the USDA as shown in the following graph with China following with 24.4%. World corn production in 2013/14 will be lower as larger crops in Ukraine and India are more than offset by lower production in the United States, Mexico, EU, and Russia.
According to the USDA, world soybean production showed a similar concentration among producers as shown in the following chart. The United States is the largest producer of soybeans in the world, averaging a production of 69,682 TMT of beans. The United States is also the world's largest consumer of soybeans, sitting at an average annual consumption of 45,313 TMT. While the U.S. retained its number 1 position as a producer of soybeans, continued increases in Brazil, Argentina and Paraguay combined to place soybeans produced in South America far ahead of U.S. production.
Source: USDA Foreign Agricultural Service Table 07: Soybeans: World Supply and Distribution.
There is a difference between corn and soybeans. The Northern Hemisphere dominates in the production of corn. The Southern Hemisphere and particularly, South America provides the bulk of soybean production. As a result, the availability of supplies to meet demand for both crops is different depending upon the growing season as well as the difficulties of shipping to the respective markets.
World Demand
Corn demand is driven by consumption in the United States and China. Together they represent about 55% of total demand as shown in the following table according to the USDA.
Soybean demand is driven by China which is the world's largest consumer of soybeans. Lester Brown writing in the Earth-policy.org site says: "Nearly 60% of all soybeans entering international trade today go to China, making it far and away the worlds largest importer."
"Chinas neglect of soybean production reflects a political decision made in Beijing in 1995 to focus on being self-sufficient in grain. For the Chinese people, many of them survivors of the Great Famine of 195961, this was paramount. They did not want to be dependent on the outside world for their food staples. By strongly supporting grain production with generous subsidies and essentially ignoring soybean production, China increased its grain harvest rapidly while its soybean harvest languished."
Soybean usage for recent years is also shown in the following table from the USDA.
Where is the Corn-Belt?
In any discussion of corn and soybean yields, it helps to understand just where the major areas of production are. The following chart shows the percentage of the U.S. corn crop in 2012 grown in the major growing states.
Source: http://standeyo.com/NEWS/12_Food_Water/120709.corn.disaster.html
Over 50% of the total corn crop is grown in Iowa, Illinois, Nebraska and Minnesota. Hence, it is critically important to be cognizant of weather and growing conditions in these areas. Nebraska is the only one of these states that has significant irrigation. However, recent developments regarding depletion of the aquifers has reduced the positive impact gained in Nebraska from irrigating crops.
A similar situation exists in soybeans as shown in the following chart.
Source: FarmDocDaily: Concentration of Corn and Soybean Production in the U.S.
Observations and Notes about U. S. Crops
Historically, our farms have never had a losing year and our yields have been in the top 10% of all farms in Iowa and Illinois since at least 1950 and probably before. Last year thanks to higher prices, revenue was the same as 2011 which was the all-time record year. Severe drought impacted yields in the Eastern corn belt in 2012.
The period from March, April and May in the Midwest resulted in the wettest 90 days in history for many parts of the western Corn-belt.
As a result, there was only a limited window in North Central Iowa from April 26-28th to plant corn and many farmers failed to plant worried about the soil moisture levels. It began raining again early on April 29th, then it snowed 8-12 the next few days. Shortly thereafter, it also began raining again making planting impossible under those conditions.
In North Central Iowa, all of our farms were planted during that window. If corn fields did not get planted then, it would be at least until May 22ndbefore conditions became suitable for planting.
Many farmers did not get corn planted until late May or early June. One rule of thumb is that yield goes down 1% in corn for every day planted after May 15th.
In early June and again at the end of July 2013, we surveyed farms in Iowa and Illinois. In 2012, Illinois farms suffered badly from the drought while the Iowa farms made record yields. The picture this year is somewhat different. Here are some actual statistics as well as estimates made of the potential yields in both of those surveys.
Drought is regaining strength
It should be noted that North Central Iowa has retreated back into severe drought conditions. The following two U.S. Drought Monitor charts illustrate the deepening drought in various areas of the Midwest from the end of the rain period in June 2013 to now.
Perhaps, the best call many farmers made this year was to increase crop insurance coverage from 70% to 80% of the 10 year average yields.
On August 17th, our North Central Iowa farms received 1/10 inch of rain for the first time in 10 weeks. During the critical pollinating and tasseling growth period, the lack of rain is a major problem.
As the U.S. drought monitor map for August 27th clearly shows, drought has regained a foot-hold in much of the western corn belt and a large portion of Illinois. This does not bode well for crop yields.
Pro Farmer Crop Tour results
The ProFarmer crop tour sponsored by John Deere has become one of the best indicators of crop size and potential since it began. The Pro Farmer Midwest Crop Tour is in its 20th year. A team of more than 100 growers, industry experts and media reporters scouted about 2,000 fields in seven Midwest states August 19-22. The area covered by the tour is shown in the following map.
Variability complicates the yield calculation
As both myself and the ProFarmer crop tour have noted, the biggest factor in trying to estimate size of this years corn and soybean crops is that there is extreme variability within the same field.
Crops may look fine from the road, but an aerial view of northern Iowa and southern Minnesota reveals a true picture of what too much rain can do. Bare fields, large holes in the middle of lush, green fields and inconsistency stretching for miles can be seen from flying over northern Iowa and southern Minnesota.
The final Pro Farmer crop tour estimates are shown below and they came with a caveat that the yields could only be realized if the weather was perfect for growing the next six weeks. Of course, the high temperatures of the past week and the forecast for next week obviate that caveat.
ProFarmer Crop Tour Results
|
|
Total Bushels |
Average Yield |
|
Corn |
13.46 billion |
154.1 |
|
Soybeans |
3.158 billion |
41.8 |
Factors influencing Current Price Levels
The USDA estimates have been used by many hedge funds and investors along with commodity houses to attempt to calculate both supply and demand potential. In 2013, the USDA increased the total number of acres to be planted for both corn and soybeans to record levels. Moreover, after the drought conditions that plagued production in 2012, the USDA took yields back above trend-line yields. With carry-over at near record lows at the end of 2012, the USDA was suddenly projecting near-record highs in the carry-over levels for both corn and soybeans. It should be a no-brainer that prices fell in mid-July from the 2012 old-crop levels for both corn and soybeans.
The USDA really never explained where all those acres would be found. Was it from marginal land going back into production, or perhaps, CRP land returning to production. Maybe, all those housing developments left-over from the housing crash would suddenly feel the tires of a tractor again pulling a planter. Of course, some of those acres might be taken from other crops.
On Monday, July 15th, corn prices dropped 24% from Friday's close of $7.0225/bushel to Monday's close of $5.36/bushel as end-users decided that either the price was too high or that they had enough corn to meet their needs until harvest began. The USDA and many independent commodity firms were still projecting bumper yields at that time.
The drop in soybeans was nowhere near as large, only about 8% on the same date, as seen in the following chart.
In any event, the initial USDA estimates are overstated on both a yield basis and an acreage basis.
CNP acres (could not plant) are now considered to be the largest in history by a large margin thanks to the weather in North and South Dakota, Minnesota, Nebraska, Missouri and Iowa. In North and South Dakota over 2 million corn acres were not planted nor was a substitute crop planted. According to ProFarmer, Iowa and Minnesota also did not plant 2 million acres due to:
"The pounding rains, the saturated soils, the late plantings and then the mudding it in in a lot of cases led to these problems," says Brian Grete, Pro Farmer senior market analyst.
In North Central Iowa, it is estimated that at least 5%, perhaps, 10% of the corn acres were not planted. Moreover, one estimate was that about 20% of the acres were planted after June 3rd. Each day after May 15th probably costs about 1% in potential yield.
During my trip in late July, I walked into many corn fields where the stalks were not up to my hips and were trying to pollinate. Even then, the amount of tip-back was severe. Tip-back is when the corn plant cannibalizes its own kernels to survive. The corn ears pictured below could be found in many Iowa corn fields.
Source: University of Illinois- Urbana
The big unknown is demand. Carryover in both crops last year was near record low levels and most areas throughout the world have not recorded great crops.
The official USDA estimates are attached along with the current USDA estimate. Bloomberg suggests as of August 23, 2013:
The U.S. Department of Agriculture probably will cut its soybean-crop estimate by 2.5 percent, according to a Bloomberg survey of eight participants in a seven-state tour of more than 2,600 fields sponsored by the Professional Farmers of America. The governments corn-harvest forecast may fall by 1.5 percent, a survey of nine crop scouts showed.
Crop Supply and Use
The August 2013 crop yield estimates shown in the tables below from the USDA were made before the above Bloomberg comments.
Conclusion
Is the bottom in for both the 2012/13 corn and soybean prices? Based upon conversations and personal observations throughout the U.S. during August, my personal opinion is "YES".
The key problem is that the corn and soybean harvest yields won't really be discovered until the combines begin to harvest in late September and into October in the Corn Belt. As noted by both ProFarmer scouts and myself, crop yield within a field is the most variable found in many years as a result of the weather and late planting.
With temperatures in much of the corn belt in the high 90's and even 100 degrees F., the corn and soybean yields are going downhill each day. An early frost and/or more high winds and hail could further reduce crop potential in the next month.
Many farmers will probably store grain this year if they get a crop to take advantage of higher prices later. In my travels, I failed to find any significant levels of farm-stored corn and soybeans. The high prices of the last year pretty well found the bins swept clean by the end of Spring.
I repeat, "Yes", the bottom is in this year. On Friday, August 30th on the CME, corn closed at $4.83/bushel and soybeans closed at $13.475/bushel.
Time will tell if I am correct that the bottom is in for this year's crops.
But then - 'Tis Only My Opinion!
Fred Richards
September 1, 2013
Corruptisima republica plurimae leges. [The more corrupt a republic, the more laws.] -- Tacitus, Annals III 27
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Last updated - January 31, 2013