This is why I don't think the yield will fall north of 160. The biggest acreage shift won't occur in the cornbelt. It will occur in the fringe areas particularly the areas where wheat competes with corn. It's pretty hard to out guess mother nature, but I'd hate to think how many acres of corn would have been planted a year if it hadn't been so wet and flooding in many areas. While there's still a lot of time for things to change, it doesn't appear that we'll face this challenge this year. In many parts of the country, we've had one of if not the warmest winter on record. Without mud to contend with, it appears corn could go in the ground early and emerge fast.
Wouldn't the shift away from corn in the fringe areas actually be beneficial to national yield per acre. I guess we need to look at the forest instead of the trees though. Its all about total supply and demand, not necessarily the numbers that are multiplied to get the supply or demand. I believe the numbers that were put out by the usda at the conference are a little silly. I wonder if traders will posistion themselves bearishly in alignment with numbers and then have room to get bullish or will they dismiss them completely and trade off of a more rational production number?
The shift in the fringe areas aren't away from corn. They'll shift from spring wheat and such to corn. I don't think the numbers USDA puts forth are silly. 164 is trendline yield. What else would they use this time of year? If we were to assume we'd plant 86-88 million acres, I'd say 164 is very attainable. However, we're expected to plant well north of 90 million acres which means a lot of fringe acres gets planted. To date, we have not been able to reach a 160 national average when planting more than 90 million acres. When we deviate this much from trend in terms of acres planted, it changes the trendline yield. I'm sure there will come a day when we can grow 160+ bushel yields in my local area on dryland consistently, but we're still quite a ways from it. There's just too many fringe areas like here on dryland where 120 bushel corn is exceptional.
If we're to start picking numbers from the outlook that seem silly, I'd be more inclined to look at the corn demand numbers. USDA is expecting corn demand to pick up quite a bit over this year. This is very optimistic as far as I'm concerned. We know that in cold storage we have the 2nd largest supply of not only beef but pork as well in history, yet we're near or making new all time high prices. Obviously, consumers have reacted to record meat prices. Then, we have a beef industry that is trying to expand. While this might seem bullish corn, it isn't in the near term because a lot of heifers that would have been fed in the feedlot are retained and not fed any corn. I wouldn't be shocked if corn demand for feed isn't less this coming year. USDA has already stated ethanol demand will be lower. Ethanol and feed consume 75-80 percent of the corn crop. Exports may very well jump, but I highly doubt they jump 800 million bushels or so.
Looking at the spreads, we know how the traders are positioned. They're long old crop corn and short new crop corn. The July to Dec spread is the widest it's been since September, 2011. I'd venture to guess this will be the theme until/if we see a weather scare this summer.
I think the swing acres will be from corn to beans. Spring wheat in our area has been on the way out for years and will not be coming back anytime soon. I'm in the northern plains and here people that may have been switching more to corn instead of beans may now take a second look at beans, especially if current trend remains. Also, in areas where the best and better hybrids are not available, this might tip the scales back in favor of beans.
As far as trendline yields, I think a 10 year average makes more sense. When you figure your budget do you take your acres and use an average (5yr or 3 yr) yield or so you just plug in a huge number to start with that you have never been able to attain before? If the National yield would have been my average yield the last 5 years I think I would feel a lot more comfortable with 155 vs 164. 9 bushels an acre on 87 million harvested is a huge difference. Perhaps they are conservative to the upside like we are to the downside when figuring bushels, I'm not sure. What if the next three years we averge 155, 159 and 151? That would put us at an average of around 155. What is trendline gonna be in 3 years? 170? I just think trendline is silly to use but you are right they have to use something.
As far as demand, you are probably right. Ethanol is the one that makes me a little nervous. You sound way more informed on the demand side than me so I won't argue.
I think you are right on the trend of the market. They feel the big crop will be there until something happens to show them it may not be. The question is, if at planting corn is $4.50 cash and beans are $12 cash will there be 94 million acres planted?
I always enjoy your posts Gored. This winter when you got bullish I was happy to see that because you seem like more of a bear usually.
At a presentation in Iowa City last Wednesday, Dr. Chad Hart put out some info that touched on some comments made here:
1. USDA does consider and factor in that some additional corn acres will be in areas that do not have the same yield potential as the corn belt.
2. Corn yields are going up at the rate of 1,8 bu/acre/year natiionally. In parts of Iowa, it's going up well over 2.0 bpa. This is factored into the trend line yield numbers.
3. China prefers to not buy corn and will usually do so in significant numbers only about one year out of five. China is looking for other corn suppliers besides the U.S.
Following are my own thoughts.
If we have continued dry weather in the soutwest, the cattle restocking may stay slow. Heifers that would have gone to pasture may go to the feedlot and slaughter.
There is considerable flexibiltiy in some local farmers on their crop rotation. On the other hand, a lot of NH3 was put down last fall and that implies corn. So it's hard to say just how much current cropping plans will change.
If spring weather continues any where near like it is now, we are likely to see some interesting shifts in timing of insect and perhaps weed proliferation. We might see early corn planting and early pollination which might affect how much corn and beans are affected by weather, whether typical or atypical.
It makes one wonder if the market spring highs could come earlier than usual. The summer volatiiltiy might last longer than usual.