2011 crop report expected to show further drops in surpluses, yields

Source: DAN PILLER • Des Moines Register  • Posted: Friday, January 13, 2012

Since mid-December, corn prices have risen 76 cents per bushel and soybeans are up $1.20 per bushel, restoring about $2 billion to the value of Iowa’s crops lost in a price decline that began around Labor Day.

This morning, the U.S. Department of Agriculture’s final 2011 crop production report, along with forecasts for domestic and foreign demand, will tell farmers and traders if those gains can be sustained or will slip again.

“It could be a game-changer,” Don Roose of U.S. Commodities said of the report, which is set to come out at 7:30 a.m. CST.

Tight domestic and foreign supplies of corn have boosted prices since mid-2010. What once were surpluses of 2 billion to 4 billion bushels in the U.S. have dwindled to less than 1 billion.

Traders expect that the total U.S. surplus for corn will be reduced from the estimate of 848 million bushels given in November to 753 million bushels today. That amounts to little more than a three-week supply.

On the production side, the story has been told. The 2011 U.S. corn crop was hobbled by floods, a mid-pollination heat wave in July and other calamities that included wind and fires. The average yield is expected to fall below the record 165 bushels per acre in 2009 and 153 bushels per acre a year later.

In the U.S., corn stocks have been pressured by an increase in ethanol production of almost 3 billion gallons annually since early 2010.

Concerns that the ending of the 45-cent-per-gallon blenders tax credit for ethanol on Jan. 1 would cause a steep dive in ethanol production were eased somewhat Wednesday. The U.S. Department of Energy said the first week of post-tax credit production this year was still 56,000 barrels per day higher than the first week of January 2011.

The real question will be on the export demand side. High U.S. corn and soybean prices and foreign competition have cut exports 5 percent for corn and 29 percent for soybeans for the marketing year that began Sept. 1.

Those numbers had helped push corn prices below $6 per bushel and soybeans under $12 per bushel before Christmas.

But since then, reports filtered north of 100-degree-plus heat, plus dry weather, in Brazil and Argentina, just as those countries’ below-the-equator corn pollination periods began.

“I’ve seen estimates that the corn crop in South America could be down by as much as 17 percent,” Roose said. “The question (today) will be how much the USDA might reduce world supplies of corn because of the drought.”

Rains in South America on Monday eased concerns slightly. “The rain may temporarily relieve crop stress, but total falls may be insufficient to change the medium-term drying trend, particularly given hot, dry weather is to return next week,” Luke Mathews at Commonwealth Bank of Australia told the website Agrimoney.

Global weather affects Iowa agriculture. A drought in 2010 cut the Russia/Ukraine grain harvest by 35 percent, knocking those producers out of world export markets and beginning what turned out to be a doubling of U.S. corn prices.

Those higher corn prices, in turn, fueled a 35 percent increase in Iowa farmland prices to record levels by the end of last year.

The U.S. is the world’s largest corn exporter, with 54 percent of international business. Argentina and Brazil are second and third with a combined total of 27.5 percent of exports.

Russia, Ukraine and Kazakhstan now claim about 20 percent of the total world grain market. This year Russia, blessed with a bountiful crop, is back in world markets with a vengence.

Russian agricultural officials said this year’s grain harvest totaled 92 million tons (39 bushels to the ton), and enough was left over to export 17 million tons.

Those Russian exports have been a prime reason for the drop in U.S. corn exports since Sept. 1 from the previous year. The U.S. corn markets were unnerved in October when Japan, normally a dependable U.S. customer, made a big purchase of discount-price corn from Ukraine.

Through the 2011 U.S. harvest, many traders worried that a big South American corn crop to be harvested before U.S. farmers begin planting in April could put another whammy on U.S. exports.

The South American weather has changed the picture.

“The U.S. won’t capture all that lost business, but should get some, further reducing my projected ending stocks forecast,” said Bryce Knorr of Farm Futures Magazine.

Earlier USDA reports in 2011 had pushed up U.S. domestic corn stocks from a low of 675 million bushels in late summer to more than 900 million bushels by harvest time, which took some urgency out of corn prices.