Trade is starting to look forward to the January supply and demand report, as this will contain final yield data for the current marketing year.
One of the numbers in this being questioned the most is harvested acres on corn. The USDA is currently projecting harvested corn acres at 90.5 percent of planted acres. This seems a little high, as in most drought years such as this, harvested acres fall closer to 85 or 86 percent of planted acres.
Contrary to this trend, the USDA has increased harvested acres on corn in seven of the past eight years.
There is also uncertainty over what may happen to corn yield in the January production report. According to data from F.C. Stone, the U.S. corn yield has declined four times in the past seven January supply and demand reports.
The average yield change is less than 2 bushels per acre, but even this can have a huge impact on balance sheets in today’s market environment.
There are several market analysts who believe the United States needs to ration corn inventory. These analysts believe corn futures will need to climb at least 50 cents per bushel to ensure adequate carryout this year.
This opinion is being based off current corn inventory and demand, though, which will change in the future. There is also a possibility corn production will change in the future and alter possible carryout.
One of the greatest unknowns in future corn demand is from the ethanol industry. Ethanol demand on corn has been growing at a rapid pace of 475 million bushels per year recently, but this has now slowed.
In fact, there are many indications ethanol manufacturing has topped, and we could see production and demand erode in the future. Not only is this from poor margins, but from a decline in gasoline demand on the whole – the result of a poor economy.
Even if corn inventory does in fact need to be rationed, for how long is questionable. Economists claim new-crop corn futures equate to a 137 bushels-per-acre average yield for the United States.
A yield increase of just 10 bushels per acre would add 1 billion bushels of corn to the nation’s corn surplus next year. A trend yield of 164 bushels per acre would allow corn inventory to climb to 3 billion, and remove all need to ration stocks.
There remain legitimate concerns that if U.S. soybean demand does not subside in the near future, U.S. inventories will be depleted. The soybean inventory on March 1 is expected to be at 800 million bushels, well below last year’s 1.37 billion on that date.
This will be just enough soybeans to cover domestic crush and leave roughly 100 million bushels for exports. While still critically tight, this does indicate the United States could make it to new-crop harvest on present inventories if needed.
The USDA has increased its income projection for ag exports next year, mainly from strong soybean demand. The United States is now forecast to export $22.5 billion in soybeans in 2013, up from $19.8 billion in 2012.
Exports of corn, wheat and livestock are all expected to be down for the year. The USDA also increased its ag import forecast to $115 billion, to give us a trade surplus of $30 billion in 2013, down $2.4 billion from this year.
We are seeing renewed disputes between renewable energy groups and the food industry on what impact fuel mandates have had on food values. A recent report from a U.S. food group claims elevated food values are the result of federal renewable fuel mandates, not the drought that has impacted the United States for the past few years.
Renewable fuel groups are quick to point out food inflation has actually slowed in recent years compared to what it was in the 1980s and 1990s. These individuals also show food inflation in 2012 and 2013 will be right in line with historical trends.
Karl Setzer is a commodity trading advisor/market analyst at Maxyield Cooperative. His commentary and market analysis is available daily on radio, in newsprint and on the Internet at www.maxyieldcooperative.com
The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are believed to be accurate.
This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.