USDA on July 11 released the government's latest projections on the size of this year's corn and soybean crops. They dropped the national corn yield projection from the 166 bushels per acre forecast in May to 146 bushels per acre. Conditions are the worst since the drought of 1988, the report says.
"Scarce rainfall coupled with record-breaking temperatures have created unfavorable growing conditions in many of the major corn-producing regions of the U.S. this summer," the report continues.
USDA made a similar projection for lower soybean yields, saying "the U.S. soybean yield for 2012 is projected at 40.5 bushels per acre, down 3.4 bushels from last month. The drop reflects sharply declining crop conditions resulting from limited rainfall since early April, coupled with excessive heat across much of the crop producing area in late June and early July." Like corn, soybean carryout stocks at the end of the current marketing year on August 31 are projected to be at a 15-year low.
Circle August 10 on your calendar; first official USDA yield estimates for 2012
The first official USDA yield estimates for 2012 corn and soybean production, based on actual field conditions, will be released on August 10. The numbers released in July and in May were projections but were not made based on any in the field surveys. Therefore, they are not considered to be estimates, just projections.
Corn yields in Iowa are down due to drought in the Midwest, but Iowa isn't hurting as bad as some other states are, such as Illinois and Indiana. The July report doesn't breakout the projected yields for individual states. But Iowa's corn yields tend to be about 10% higher than the national average, which would imply a yield of 160 bushels per acre in Iowa this year, compared to 172 bushels per acre in 2011. Based on these numbers, Iowa's total production this year would be about 2.24 billion bushels, down from 2.5 billion last year. USDA in the July 11 report projected corn prices would average $6.10 to $6.30 per bushel through harvest this fall.
At prices this past week, which were above $7 per bushel, Iowa's corn would be priced on paper at about $15.7 billion, which is close to the 2011 cash total of $15.5 billion. At the average price of $6.20 per bushel forecast by USDA, the paper value would be more than $13 billion. Corn prices, which climbed 45 cents a bushel in the last five weeks as the drought worsened, initially rose after the report was released Wednesday, July 11, then fell back and ended down 9 cents a bushel to $7.03. Soybeans were off 25 cents per bushel to $15.22 a bushel.
Soybean stocks are so low, market analysts expect we'll see very high prices
Iowa produced a soybean yield average of 50.5 bushels per acre last year, which was the highest of any state in the nation. The Iowa soybean crop produced about $5 billion in cash receipts to farmers. The reduced national yield currently forecast by USDA for this year is 40.5 bushels per acre. Iowa's yield is usually 10% or so higher than the national average, which would calculate out to an Iowa yield of around 45 to 47 bushels per acre in 2012.
With soybean prices expected by USDA to be about $1 per bushel higher than in 2011, the Iowa crop this year would generate about the same $5 billion level in cash receipts that it did last year.
Expectations of reduced crop had already driven corn up by $2, to $7 per bushel
These higher corn and soybean prices are a double edged sword for Iowa agriculture and the state's economy. Farmers who get rain and are fortunate enough to harvest a good crop this fall will see a continuation of the good profits they've enjoyed in recent years. If more farmers get relatively good yields, farm implement manufacturers will continue at full employment and land prices should also stay at record levels.
However, the higher grain prices for this coming year are a different story for livestock producers and ethanol manufacturing plants. They face higher costs for corn. And consumers at the dinner table would likely see higher meat prices. Already some cuts of beef and pork have seen price increases of 25% during the past year. Hay is already high priced due to reduced yields from the drought. Pastures are burned up by drought this summer in many areas of the Midwest. Cattle and hog producers will have to pay higher costs for their corn-and-soybean based feeds, too.
Margins at ethanol plants are already running negative. Higher corn prices will put a squeeze on the industry, similar to what happened in 2008-09, when several Iowa plants went bankrupt.