Analyst questions USDA corn estimates

Market prices have adjusted to account for the United States Department of Agriculture’s projections of yield from last month’s report, but are they right?

Does it matter?

Bryce Knorr analyzes markets for the American Farm Futures information service. He told farmer audiences in packed tents at last week’s Farm Progress Show in Boone, Iowa, that they must consider the source when it comes to acreage and yield insights.

And while there might be little good news coming about the large crop the U.S. is about to harvest, there might be light at the end of the tunnel.

“Sometimes USDA ratings are very close, but what is the most accurate way to measure the crop’s potential yields in August?” he asked the crowd.

He said the USDA’s methods can generate good estimates, but he feels weather modelling provides a better picture of what will ultimately be harvested.

For the corn crop, Knorr said an analysis of July weather in eight key states has proven over time to provide the best view into the future.

“And this year I think there is enough evidence that the USDA is too high on its yield estimates,” he said. “But it would have to be off by a great deal to make a significant change to prices at the farm.”

That is because the crop is projected by most to be at or near a record 15.2 billion bushels.

The high influence of the U.S. corn supply usually affects all crop markets, including prices of Canadian crops.

Roger Zylstra is a cash crop and hog producer east of Des Moines, Iowa.

“It is a good crop. But a record crop? Records are pretty big. I am not sure I am seeing it being that good out in the fields, he said.

He said the large crops of the past few years have pressured prices.

“We feel it. Feed costs are better though. And we (livestock producers) have the edge of providing nutrients from manure. But these big crops are making things tight for farmers. You have to make up for the price with yields,” said the regional representative for the producer group Iowa Corn.

Knorr said if the USDA numbers are right, even though the demand for corn remains strong, it will keep a lid on prices.

“I can’t say that even $3 corn will hold,” he said.

Knorr said other issues are playing into corn’s continuing slide in price, even if the USDA has over estimated the crop, now estimated to be 175 bu. per acre.

He said some good news in the market place isn’t as rosy as it looks. Ethanol producers are cranking out more product because of low oil prices.

Americans are taking advantage of gasoline prices in the US75 cents per litre range. The mandatory blending requirement means that demand for alcohol is rising with every fuel fill up. However, recent improvements in distilling practices are squeezing more liquor out of the stills per bushel of corn.

“So that isn’t as good as it sounds for demand,” he said.

Chinese corn use has been good, and that country is cutting its direct, per bushel subsidies.

Farmers who were once getting $9 per bu. now receive about $5.50. And that should bode well for imports.

However at the same time, China has a mountain of inventory and is not fully tapping its contracts with Ukraine.

The U.S. is the lowest-priced exporter in the current international market, so while sales are steady and the volume of American shipments is high, it might not be sustainable throughout the season.

Knorr said many American producers who enjoy higher than average yields will see profits if they priced some of the 2016 harvested crop last season and take full advantage of available crop insurance programs.

Should the harvest be smaller than the record predicted and closer to the 168 bu. per acre long-term trend and if the USDA also overestimated the seeded acreage, the carryout could tumble from the projected 2.4 billion bushels to something below two billion bushels and possibly even as low as 1.8 billion.

Those situations would likely create some significant rallies in corn, but Knorr feels it is a long shot.

Knorr said a big crop of soybeans is also coming, but unlike corn, the demand for the crop will continue to eat through the record production.

Bob Burgdorfer of Farm Futures said if there is an upside in the market it will be in beans.

Knorr agrees.

“Beans, 48.9 (predicted bu. per acre) is not out there and 50 isn’t out there. It is more like 46 or 47. There is some potential for soybean yields to get smaller.”

He added that 49.2 bu. per acre in soybeans would give cash prices of about $8.50. If there are 46 and 47 (bu. per acre yields) then it can be US$10.50 with rallies to US$11.50 or US$12.

“Wheat is at the lowest prices since 2006 and not likely going to get any better,” he said.

Burgdorfer said spring wheat has shown some signs of strengthening, but winter appears to be struggling to increase.

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