Corn Demand Recovery Forecast May Be Overly Optimistic

[rswfarms]

Article on corn demand for 2013. These articles make it very difficult to decide on the proper marketing methods to use for our 2013 corn and soybeans. Seems we always get 1-2 weather scares every year in the spring/early summer. Do we use these weather scarces to forward contract corn at the ethanol plants for fall delivery? And then try and protect our upside risk exposure with say in-the-money Call Options in case the weather scares do turn out to be real? It would be very, very, nice if we could get Fall/2013 cash corn up to $6, then forward contract our bushels with the ethanol plants and use call options to protect our upside exposure in case corn did hit $7 for Fall/2013 Delivery. Any thoughts or ideas for our 2013 crop marketing would be good to hash-over. Article is below, and it would be interesting to hear what some of you guys are planning for your 2013 crop production. Also, are some of you guys in the ACRE Farm Program that has what appears to be a nice Goverment Target Corn and Bean Price, and how are you working ACRE into your marketing program. Thanks for any thoughts.ideas.

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Corn Demand Recovery Forecast May Be Overly Optimistic

March 8, 2013

By: Ed Clark, Top Producer Business and Issues Editor

The corn demand recovery USDA projected at last month’s annual Outlook Conference may be overly optimistic, in the view of Chad Hart, ag economist at Iowa State University. Overall, USDA projects total corn demand of 13 billion bushels, driven by a rise in food, seed and other uses by 50 million bushels, a rise in corn exports by 600 million bushels, a jump of feed and residual use by 950 million bushels, and growth in ethanol use, although corn usage for ethanol is still expected to remain below the level of 2011.

Hart thinks USDA’s demand numbers are not likely to materialize, with his biggest concern in the feed and residual category. Assuming trend yields, ending corn stocks for 2013/14 could grow dramatically to over 2 billion bushels. Corn prices, under this scenario, would drop below $5/bu., Hart predicts.

Given projected production costs for the 2013 corn crop, the marketing year looks profitable assuming trend yields, but margins are likely to be much smaller than producers have captured over the past three years. "In this respect, the 2013 corn crop year is reminiscent of 2009," Hart adds. With normal yields, corn production would leap to an estimated 14.5 billion bushels, a new production record, and supplies could recover with one good crop year.

Soybean export demand is projected to hit 1.5 billion bushels again, which would be the most exported since the 2010 crop year. "In fact, the 2010 crop year is the closest comparable to the projections for 2013 in terms of acreage, demand, ending stocks and prices," Hart says. For the 2013 crop year overall, supplies exceed demand and ending stocks build with normal yields, he adds. "That combination points to lower prices," he notes. USDA’s early projection is $10.50/bu., which would be roughly 50 cents below Iowa State University’s projected costs. "Based on these projections, soybean profit margins would disappear."

Hart notes, however, that current futures prices offer more positive margins for both crops. Some of those are originating from ongoing acreage bidding in the markets, but most of the margins are derived from concerns about the lingering drought and low soil moisture conditions. That would prevent as large a buildup in stocks as USDA projects due to the below trendline yields that many analysts predict for the coming year, he says. Futures markets show season-average crop prices of the $5.25 range for corn and $12 for soybeans. These prices offer about a 75 cent per bushel margin for corn and $1 margin for soybeans.

[c-x-1]

2 Billion corn ending stocks - it just keeps gettin' better (as in, more entertaining).

[rswfarms]

Yes, C-X-1, 2 Billion bushel carry-over seems like pie in the sky given our extremely poor sub-soil at least in Northern Iowa. I am still glad I signed up for the ACRE Goverment Program in 2008 just in case this scenio does play out and we do end up with a 2 Billion bushel corn carry-over. If that does happen corn will most likely have a 4 at the beginning beginning price. For only a 2 cent per bushel cost I will sleep better being in the ACRE Program. The bad part about ACRE is that any ACRE Revenue Checks issued by the goverment to farmers will not get to us until the end of the 2013 Marketing year, but those are rules so guess we need to obey them.

[breakout 99]

One thing the USDA has had trouble accounting for is the new crop corn used in the old crop year.  I suspect that will happen again this year due to some likely pretty good premiums on the old crop.  If we grow a normal crop in 2013 they will report that corn that overlaps the reporting year as being fed in the 2013/14 year, even though it will be fed in the 2012/13 year(next August).  If they wanted to report that overlap corn as being fed in the year it actually is fed they would have to add a line to their balance sheet showing new crop corn already harvested - otherwise it would blow a big hole in their carryout.  So I guess what I am saying is the feed use for next year may well be down but a higher number will be reported in the feed and residual  to make the books work unless we grow another short crop.  In that case they will kick the can down the road for another year.

[kyu2852570]

Rsw you are dreaming if you think you are gonna get an acre payment. The formula might say you should but the govt will say they don't have money for it. When I signed up a week ago they showed me a paragraph that said they might and might not send us our hand outs this fall, depending on what they have available for funds isn't the cap only $60k per operation anyway? Market swings in one week can amount to more than that so I think you are thinking way too much about acre for what good it's actually gonna do you

[rswfarms]

Yes, we may or may not get an ACRE Subsidy check in 2013, depending of the average corn price for the entire 2013 Marketing year. I really need to go back and review that ACRE Formula that the USDA uses to determine pay-outs. It is all on the USDA Website, so guess we better review the rules. That should be fun!!!! LOL

[Mike NCIA]

At least your custom operators will get partially paid...................."Total farm payments are also subject to a $65,000 payment limit plus the 20 percent decrease in direct payments. If the farm is at the $40,000 direct payment limit, the effective ACRE payment limit is therefore $73,000."

[rswfarms]

kyu- below is the USDA Link to the ACRE rules and formula's. Guess all guys in the ACRE Program should review it and try to figure what's going on. We have an entire year to do this, so plenty of time. Link is below:

http://www.fsa.usda.gov/FSA/newsReleases?area=newsroom&subject=landing&topic=pfs&newstype=prfactshee...

[rswfarms]

Yes Mike, I remember the $73,000 per individual limit for ACRE. Now, to go over that limit takes you into a whole different ballpark. But for myself as an individual, $73,000/year is only $45/acre. Guess even this small amount helps when you are looking at $4 corn. $4 corn and we will all be looking for addition revenue streams to reduce our COP (Cost of Production).

[lostiniowa]

What might throw a wrench in your acre planning. In the FSA link you provided go down the page and click on Table 2 program quarantee. Read the note at the bottom of the table. Let me know how that will work? 10% per year for 3 years still is a small number if the starting point is $4.15.