CME: Lower Numbers for Corn Crop Expected

US - USDA will release its November Crop Production and World Agricultural Supply and Demand Estimates Tuesday morning and analysts expect lower numbers for the corn crop and higher numbers for soybeans, write Steve Meyer and Len Steiner.
calendar icon 9 November 2010
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The results of DowJones’ pre -report survey of analysts appears below. They represent the averages and ranges of the estimates for 26 grain market observers. As can be seen, they expect, on average, USDA to reduce this year’s national average corn yield by another 0.4 bushels/acre, putting it just over 10 bushels or 9.4 per cent lower than last year. The lower yield would drive the corn crop down by another 119 million bushels from the October estimate to 12.664 billion bushels, 4.3 per cent lower then last year. The story is quite different for soybeans where analysts expect the yield estimate to increase to 44.6 bushels/acre and the crop to grow to 3.426 billion bushels — both record highs. CME Group Corn futures for the 2010 crop were off 2.5 cents per bushel today while soybeans for the coming crop year were down 8.25 to 9.5 cents/bushel. Soybean meal futures closed roughly $3/ton lower across the board.

A separate survey of expected year-end stocks next August pegs corn inventories at 840 million bushels, their lowest yearend level since 1995-96, the year of then-record corn prices. Those record stood until the oil price- and ethanol-fueled spike of 2008. The predicted 840 million bushels compares to 902 million estimated in October and 2009-10 carryout stocks of 1.708 billion bushels. In spite of a larger predicted crop, analysts expect soybean year-end stocks to fall — from October’s predicted level of 265 million to 240 million. Robust export demand and rising soybean oil prices should keep usage high in spite of bean and bean product prices that are quite high from a historical perspective.

One explanatory note: “Year-end stocks“ and “carryout stocks“ are synonymous terms that refer to the amount of grain in storage at the end of the crop year. The crop year for corn and soybeans runs from 1 September through 31 August of the following year.

The run-up of corn and soybean meal prices that began back in July has severely dampened hopes of an economic recovery for pork producers. As of last Friday, projected production costs for Iowa farrow-to-finish operations in 2011 would average $78.47/cwt. carcass, up from the mid-$60s in late August and just over $70/cwt carcass as recent as the first week in October. Higher costs and the decline of Lean Hogs futures have taken estimated average profits for 2011 from $8.33/head on 31 August to -$0.49/head as of Friday — and that figure is over $2/head better than it was just one week earlier.

One implication of the change in the outlook is that hog producers are not nearly as likely to get healed up economically. The chart below was first put together by Dr John Lawrence at Iowa State. It simply represents the amount of money that an average Iowa farrow-to-finish hog operation, as modeled by ISU, would have accumulated if it had sold one pig per month since January 1991. The record string of profitable months in 2004- 2007 pushed this value to a record-high in September 2007 before higher feed costs reduced it by roughly 80 per cent over the next 29 months. The decline in this proxy for financial condition closely matched what we heard from pork industry lenders during that period when producers with little or no operating debt saw their equity fall from, in many cases, 80 per cent or more to 20-30 per cent. Futures markets back in August offered an opportunity to regain roughly 60 per cent of the losses and push accumulated wealth to between $550 and $600, the area marked by the red X. As of Friday, those same markets were offering a “hold-your-own“ year for hog producers in 2011. This prospect is not likely bad enough to drive much liquidation but it is definitely not good enough to drive much expansion, either.

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