USDA: 11B bushel corn harvest likely

Cattle Market & Farm Reports, Editorials
Sep 20, 2004
by WLJ
— Frosts ignored by agency; analysts still uncertain.
— Grain price down early, but recovering last week.

In its most recent crop production forecast, released Friday, September 10, USDA's National Agriculture Statistics Service (NASS) dismissed most fears about early frosts in several northern-tier corn states and projected an 11 billion bushel corn crop, a record by over 800 million bushels.
The nearest-term corn futures, and current cash corn prices dropped around, or below, $2.10 early last week, in direct response to that report. However, as last week progressed corn prices rebounded again as several analysts indicated that there is still potential for some feed corn loss.
Several cattle market analysts said it is too premature to figure in $2-or-lower corn, but that it is still possible, particularly if the top corn producing states go through the rest of September without a severe freeze.
The most recent forecast was on the high end of analysts' pre-report estimates, and up almost 70 million bushels from USDA's August production forecast. This year's projected corn crop is eight percent larger than last year's record crop of just over 10.1 billion bushels. Yields have been forecasted at seven-plus bushels more per acre than last year, when a then-record per-acre yield of 142.2 bushels was reported.
In its report, NASS said, "Yields are forecast at record high levels in all Corn Belt states, except Minnesota and Wisconsin, as weather conditions have been mostly favorable throughout the growing season. However, brief periods of freezing temperatures in the northern Corn Belt and adjacent areas of the Great Plains raised concerns about the crop being able to fully develop before a killing frost occurs."
Of the top 10 corn producing states, eight are expected to show increases in both acres harvested and per-acre yields, compared to last year. One of the top 10 states is expected to show a downturn in both figures, while the other one is expected to harvest the same amount of corn, but at lower yields, than a year ago.
Nationally, only seven states are showing potential declines in yields, compared to 2003. Those states are Alabama, Colorado, Michigan, New York, North Dakota, South Carolina and Wisconsin. Wisconsin is the only top ten producing state with a yield decline expected.
Commodity analysts that projected a decrease in USDA's production forecast, compared to last month, were still uncertain whether or not yields would be near as high as the agency has indicated.
"It's not the fact that there's not a record crop on the horizon, because there is, and that's not in question," said Barry Turner, market analyst and consultant with TL Agriculture Commodities Inc. "It's still hard to believe that the harvest will be that much larger than last year, particularly with unseasonably-cold summer weather being reported across the country, particularly major corn producing areas."
Turner also said the report is a "good news, bad news" situation, with corn producers facing the prospect of very low prices, but livestock producers, particularly cattle feeders and commercial hog raisers, looking at even cheaper feed grain prices through the rest of the year.
In addition, feeder cattle prices aren't expected to see as big of a downturn as was once expected because of the corn situation.
"We usually see a reverse $1-1.50 move in feeder prices for every dime move in corn prices, and a corn projection of 10.6-10.7 billion could have meant an additional $3-5 decline in feeder cattle prices the rest of this month," Turner said.
Instead of that, last week's feeder cattle futures movement was upward with the nearby contracts getting back up $113 per cwt.
"And that was even in the face of a dime gain in the nearest-term corn futures contract (December)," said Turner. "It's amazing what an 11 billion bushel projection did for the psyche of cattle feeders in terms of getting back into the feeder market and filling up some empty pen space with cattle that could utilize cheap feed."
Turner, and several of his colleagues, suggested, however, that any "significant" corn purchases be done now in the form of forward contracts in order to prevent any negative impact from a possible downward readjustment in the corn production figure.
"There's still a good possibility several hundred million bushels of corn could be taken out by weather or other situations, and that could mean at least $2.50 corn later this year, which could be costly given the fact that feeder cattle remain at unheard of price levels," Turner said.
Last Wednesday saw the December corn contract close at $2.18, after hitting $2.20 earlier in the day. In addition, March 2005 closed at $2.28 last Wednesday. In both cases, prices were up over a dime compared to Monday's closes.
Most sources indicated that there is still some concern that USDA's forecast is too big for the current growing conditions and maturity levels. — Steven D. Vetter, WLJ Editor