Another round of lower crop production estimates for 2010 from USDA, released in the department's November 9 monthly crop report, provides additional support for grain markets.
"Crop production estimates for the U.S. for both corn and soybeans are down again this month, tightening the already low ending stocks projected for the 2010/2011 marketing year which ends next August 31," notes Chad Hart, Iowa State University Extension grain marketing economist.
For corn, USDA brought the national yield average down to 154.3 bushels per acre, 1.5 bushels lower than last month's estimate. This lowers the U.S. production estimate to 12.54 billion bushels, so 2010 is still the third largest corn crop on record. But it's a crop that seems to get a little smaller each day.
Iowa and most of the Midwest has disappointing corn crop
The yield estimates for 2010 are down across much of the Corn Belt again. Iowa is down 2 bushels per acre from October, to 167 bushels per acre. Illinois and Kansas are down a bushel. Missouri is down 7 bushels. North Dakota, South Dakota, Nebraska, and Ohio also saw yield declines from October to November. Continuing the trend from the last couple of months, USDA found fewer ears per acre and lower grain weights during their November objective yield survey. In contrast, Iowa farmers averaged 182 bushels per acre in 2009.
Farmers in Iowa and most of the Midwest are reporting a disappointing 2010 corn harvest caused by flooded fields in July and then a spell of hot weather in early August. Some market analysts think the final USDA yield estimates that will be released in January will be even lower than those released November 9.
On the soybean side, the U.S. average yield is also reduced slightly to 43.9 bushels per acre, down one-half bushel per acre from the October estimate. The 2010 U.S. soybean crop remains a record crop, but just barely, with production at 3.375 billion bushels. Soybean yields slipped in the Great Plains and in the Southeast, but mostly held steady in the major producing states from October to November. Iowa's 2010 soybean yield is now estimated at 52 bushels per acre.
Lower corn production, tighter stocks bolster price outlook
Looking at demand, slight adjustments were made by USDA to the 2009 feed and ethanol use estimates for corn. For the 2010 U.S. corn crop, feed and residual demand is lowered 100 million bushels to 5.3 billion, based on higher feed costs. Ethanol demand is increased by 100 million to 4.8 billion, based on record ethanol production in October and USDA's estimate of ethanol producer margins. Export demand for corn is lowered again, to 1.95 billion bushels.
What will these adjustments do to the amount of corn left at the end of the current marketing year on August 31, 2011? USDA's ending stocks estimate for 2010 corn is 827 million bushels, down 75 million bushels from last month and down over 500 million from a few months ago. With the lowered production and tighter stocks, the midpoint for the 2010/11 season-average price for corn is increased to $5.20 per bushel, up 20 cents from last month and $1.00 above the 2007/08 record season-average price.
For soybeans, crush demand is held steady at 1.665 billion bushels. Export demand is raised for both 2009 and 2010 crops as the record export pace continues. For 2010, soybean exports are expected to reach 1.57 billion bushels. With increased demand and decreased supply, 2010/11 ending stocks projections are lowered to 185 million bushels, down 80 million from last month.
Continued strong export demand for soybeans boosts prices
The soybean stocks-to-use ratio would be 5.5%, well below the 20-year average, says USDA. The midpoint of the 2010/11 season-average price for soybeans is $11.45 per bushel, up 75 cents from last month and $1.35 above the record season-average price from 2007/08.
"So, some weakness is beginning to creep into corn demand, but the production reduction for 2010 more than offsets it," says Hart. What about soybeans? "Soybean demand is keeping up its torrid pace," he notes. "The USDA price shifts continue to lag behind the futures markets as season-average prices based on futures before the release of the November 9 USDA reports had 2010/11 corn at $5.46 and soybeans at $11.80 per bushel."
Soybean exports, bolstered by continued strong demand from China, are running 52% ahead of last year's pace for the marketing year that began Sept. 1, 2010. "China is buying huge amounts of soybeans," says Roy Bardole, who farms near Rippey in central Iowa and is chairman of the U.S. Soybean Export Council.
The value of this year's soybean crop in Iowa has risen, on paper, from about $4.5 billion in June when soybean prices stood at $9 per bushel to more than $6 billion this month. The cash value on paper of Iowa's corn crop has risen from about $8.5 billion in midsummer to about $13.5 billion this month. The extra money won't necessarily set off an economic boom in Iowa, but it will help support the 25% of the state's economy that is represented by agriculture. "That money will be recycled through the Iowa economy quickly in the form of equipment and land purchases," says ISU's Chad Hart.