What is in this article?:
- Are corn, soybean prices high enough to motivate rationing?
- Harvested acres also a factor
- USDA reports last Friday suggests that both the corn and soybean markets believe production forecasts will increase and/or prices are already high enough to motivate the necessary rationing.
- University of Illinois agricultural economist Darrel Good said such conclusions may be premature.
Harvested acres also a factor
“Changes in production forecasts will also be influenced by any changes in the estimates of harvested acreage,” Good said.
In the years identified above, the difference between planted acreage of corn and harvested acreage for grain ranged from an unusually low 6.269 million in 1991 to 11.082 million in 1980.
The USDA’s August survey found an expected difference of 9.044 million this year, less than the 9.467 million of 1988 and the 9.564 million of 2002.
The difference between planted and harvested acreage of soybeans ranged from only 788,000 in 2003 to 2.117 million in 1980.
The August survey this year found an expected difference of 1.445 million, very similar to the difference in 1988.
“Based on the August production forecasts, the USDA’s World Agricultural Supply and Demand Estimates August report projected minimum 2012-13 marketing year-ending stocks for both corn and soybeans,” Good said.
“Even with larger imports and a draw down in stocks, consumption of U.S corn needs to decline by 1.265 billion bushels (10.1 percent), and consumption of U.S. soybeans needs to decline by 399 million bushels (12.7 percent) during the year ahead,” he said.
Good said that for corn the biggest question for demand centers on the ethanol market. The USDA projects a 500 million bushel year-over-year decline in the use of corn for producing ethanol and byproducts.
“Ethanol demand will depend on a number of factors, including export demand, expected domestic fuel consumption, and the use of credits from previous discretionary blending to meet part of the 2013 mandate,” Good said.
“However, the transition to a heavy dependence on ethanol as an octane enhancer and the low price of ethanol relative to gasoline suggests that the decline in corn used for ethanol will be less than 500 million bushels. That conclusion would not change even with a partial waiver of the mandate.
“The 250-million-bushel expected decline in exports depends to some extent on the expectation of very large crops in South America in 2013 and a slowdown in Chinese imports. If ethanol and export demand is stronger than projected, as we suspect, the reduction in feed and residual use of corn will have to be larger than the current projection of 475 million bushels (10.4 percent),” he said.
Good reported that for soybeans, the small crop is expected to result in a 175-million-bushel (10.4 percent) cut in the domestic crush and a 240-million-bushel (17.8 percent) cut in exports.
The large cut in exports reflects the forecast of a record-large harvest in South America in 2013. U.S. export sales for the 2012-13 marketing that begins on Sept. 1 already account for 51 percent of the projected exports for the year.