Corn harvest progresses quickly; few prospects for higher prices

By Susanne Retka Schill | October 29, 2013

The corn harvest is progressing rapidly, at 59 percent harvested in the 18 leading corn production states, compared to just 39 percent a week ago, according to USDA’s weekly Crop Progress report released Monday. That is far behind last year’s 91 percent on this date, but only slightly behind the five-year average of 62 percent.

Five states are slightly ahead of the five-year average, including Illinois, Kansas, Ohio, Pennsylvania and Texas. Another six are either on pace with last year or within five percentage points of the five-year average: Colorado, Indiana, Iowa, Missouri, Nebraska and North Carolina. South Dakota is just six points behind the five year average, at 49 percent harvested. Others further behind pace include North Dakota, Kentucky, Michigan, Minnesota, Tennessee and Wisconsin.

The corn crop is virtually all mature at 98 percent, compared with last year’s 100 percent on this date, and a five-year average of 97 percent. In its crop condition assessment, USDA says 14 percent is poor or very poor condition, 26 percent is in fair condition, 43 percent very good and 17 percent excellent.

Anecdotal reports indicate a relatively small portion of the 2013 crop heading into the bins was forward priced, said University of Illinois economist Darrel Good in a FarmDocDaily post on the corn crop. Whether farmers will be rewarded for waiting with more favorable markets will depend in the near term on the Nov. 8 supply-demand forecast, Good said. “To move prices higher, that forecast would have to be smaller than current expectations that are near the September forecast of 13.843 billion bushels. A smaller forecast will likely have to come from a reduction in the estimate of harvested acreage as yield reports tend to support a yield forecast at or above the September forecast of 155.3 bushels.”

On the demand side, the focus is on the pace of sales and shipments to China. Some expect Chinese imports to be much larger as current low prices are used to rebuild domestic reserves, with the USDA forecast 275 million bushels of corn headed to China from all sources, and just 144 million sold from the U.S. for delivery in the current marketing year. While that is 100 million bushels more than sales of a year ago, only 19 million had actually been exported as of Oct. 3. Prospects for U.S. exports will depend upon South American production, with those reports beginning in November.

In his ethanol discussion, Good wrote: “U.S. ethanol consumption was fairly constant, near 13 billion gallons, from 2010 through 2012 and will be near that level again in 2013. Domestic production was also fairly constant in 2010 and 2011, but declined beginning in the summer of 2012. The decline reflected a combination of stagnant consumption due to the E10 blend wall, increased imports, declining exports, and a drawdown in inventories. Production began to recover in the summer of 2013. In September the USDA estimated corn used for ethanol production at 4.665 billion bushels during the 2012-13 marketing year and forecast use at 4.9 billion bushels during the current year. Use peaked at just over five billion bushels in 2011-12.

“Without a substantial shift in net trade and/or a change in stock levels, ethanol production during the current year will be determined by domestic consumption. To exceed the USDA projection, ethanol consumption will have to breach the E10 blend wall through increased consumption of E85. Increased consumption of E85 could be motivated by a continuation of the scheduled biofuels mandate that would support RINs prices at high levels. The magnitude of increase under that scenario would be determined by a number of inter-related factors including expansion of infrastructure for E85 deployment and the use of RINs credits to meet the mandates. A second way to motivate expansion of E85 consumption is with low ethanol prices relative to gasoline prices that allow competitive pricing of E85 relative to E10. However, that scenario would likely require a continuation of low corn prices. Based on leaked EPA documents, there is some chance that biofuels mandates will be rolled back in 2014. If so, corn used for ethanol production is unlikely to exceed 4.9 billion bushels.”

Looking ahead at corn prices, Good questioned the higher prices a year ahead for the next crop that suggest expectations are for a smaller crop in 2014.  “With corn producers reporting nearly 3.6 million acres of prevented planting in 2012 and with current 2014 crop prices favoring corn over soybean production in many areas, a decline in corn acreage in 2014 seems unlikely.”

Taken together, current prospects do not seem to favor a quick or substantial recovery in corn prices, Good concluded, without production problems in South America. “Without an increase in the price for the 2014 soybean crop, lower corn prices may be more likely.”