Supply shrinking but demand softening too
By Jean Caspers-Simmet
Date Modified: 08/02/2012 2:09 PM
NASHUA, Iowa —With crop conditions continuing to deteriorate and prices moving up to more than $7 for corn and $15 for beans, Iowa State University Extension grain marketing specialist Chad Hart said the market continues to worry about production and supply.
Speaking at the recent Iowa State University Northeast Research Farm field day at Nashua, Hart said demand issues will creep into the market discussion as many buyers have filled their July and August needs. Demand is softening from corn's two biggest domestic customers, livestock and ethanol, and export customers are cooling to high U.S. grain prices.
USDA is estimating record supply and demand with corn area projected at 96.4 million acres, Hart said. Corn yields and exports will likely shift downward in July.
For soybeans, projected at 76.1 million acres, a tight market continues to get tighter.
Dry conditions through May and June have weakened crops. Some crops still have time to rebound but will need timely rains. Much of the Midwest remains in abnormally dry or moderate drought conditions and areas of severe and extreme drought are growing, according to the U.S. Drought Monitor.
Hart has developed a computer model that projects yields based on weekly crop conditions. As of July 2, his model showed that the national corn yield had fallen to 148.5 bushels from the 166 bushels USDA is projecting.
"In general, the early downgrading of conditions usually signals a below-trend line crop," Hart said. "You've seen the pictures of the Eastern Corn Belt. I just returned from southwest Missouri where corn is the worst I've seen it. Since then we've had record heat across the Corn Belt."
Based on Hart's model, the national soybean yield as of July 2 was 41 bushels, 2.9 bushels below the USDA estimate. He said that soybeans can continue to improve all the way to harvest if weather conditions are right.
Meanwhile, world corn production is on the upswing as the high prices over the last year provided incentives for farmers to increase production. The biggest shifts are in Argentina, Mexico, Canada, South Africa and China. Soybean prices have also spurred increased plantings worldwide with South America leading the way.
These increased plantings make it tough on U.S. exports where prices are high due to production problems, Hart said.
Cattle and hog margins are weak and neither market is likely to grow in 2012, although returns look better next year.
Ethanol production remains strong but the industry still faces blend wall issues as fuel consumption has dropped with the economy. Several ethanol plants have announced closures and will likely remain offline until the new crop is harvested.
Given current prices and trend yields, both corn and soybeans could provide returns of roughly $60 to $80 per acre in Iowa, Hart said.
Continued worldwide economic recovery is a key for crop prices, and the weather remains a worry.
"When you have state climatologists talking about 1988 (a disastrous crop year) in June, it's not a good sign," Hart said.
He urged farmers to take advantage of a strong weather rally, but warned not to over-commit.
"Only sell what you have insured," Hart said. "Align your insurance with your marketing. That high price is only good if you have the bushels to back it up."