Fewer corn bushels in Iowa
MASON CITY – Over the next two years, said Chad Hart, Iowa State University’s crops market specialist, ag incomes will slump from their high-water marks of the past three years.
“But after that,” he said, “I’m bullish. We’re going to need more production to meet world demand” for commodity grains and meat.
Hart was one of three speakers on Nov. 14 at the Pro-Ag Outlook meeting in Mason City as about 40 ag businessmen and farmers listened.
Hart noted the U.S. Department of Agriculture’s Nov. 8 supply and demand report said fewer acres were planted in corn in the U.S. than were intended, as most marketers knew, but the supply numbers for the 2013 crop will continue to exceed 14 billion bushels.
Unlike many ag observers, Hart said he thinks USDA’s supply numbers are correct, since corn-producing states east of the Mississippi River are tallying record harvests, especially with many Southern states that switched their cotton acres to corn.
“Do you know the worst place to grow corn in the U.S. this year?” Hart asked.
“We’re sitting in the middle of it.”
Iowa’s wet spring and volatile hot and dry summer sapped corn yields. USDA estimated Iowa’s statewide yield average at 169 bushels per acre.
Even though Iowa has a low yield, he said, central Iowa, starting in 2014, will see corn flow diverted from the Mississippi River to Fort Dodge.
The presence of two ethanol plants, operated by Valero and Cargill, Hart said, “has changed marketing strategies in central Iowa.”
Even during harvest, basis around central Iowa is still at 30 to 35 cents over Chicago Board of Trade futures prices.
“When the southern states started harvesting,” Hart said, “they were loading corn on barges that came north, because corn was needed up here.”
For the rest of the state and the U.S. however, USDA estimated the average corn price at the end of the marketing year will be $4.50 per bushel, for a crop that ISU estimates cost $4.48 per bushel to grow.
“And right now,” Hart said, “the market is 30 cents below the $4.48.”
Besides the U.S.’s record harvest at 355 million tons – 30 percent larger than in 2012 world supply has ramped up over the past two years, especially from Russia with 11.5 million tons, a 40 percent increase over 2012, and Ukraine at 29 million tons, or 38.6 percent over 2012.
The Black Sea region is shifting away from wheat to corn and soybeans, Hart said, due to better profit margins in corn and soybeans than in wheat, plus it has better export access into North Africa and Middle East regions.
He foresees Ukraine being a long-term entity in the corn industry.
“They are investing heavy in infrastructure to move the bigger grain,” Hart said. “Hybrids also are being developed for that region.”
Around the world, USDA forecast a total of 962.8 million tons of corn would be harvested in 2013, an 11.6 percent increase over 2012.
Despite the USDA’s forecast that the U.S. corn surplus will tally almost 2 billion bushels at the end of August 2014, it’s the growing demand for U.S. corn that is keeping the price over $4 per bushel, Hart said.
“All demand records are up to near record,” Hart said. Exports are the demand to watch, while he thinks ethanol use has stabilized and he doubts domestic feed use will ramp up as much as USDA forecasted.
China has harvested a record corn crop, Hart said, “and that’s still not enough for them.”
Since Sept. 1, China has increased its purchase of U.S. corn by 21 percent. Another 21 percent of export sales are headed to unknown destinations, and Hart thinks most of that is going to China as well.
He said ethanol has seen no growth in corn use in three years because Americans aren’t driving as many miles as before the recession and because they’re driving more flex-fuel and energy-efficient vehicles.
“The industry has rebounded,” he said, “but only to 2011 levels.”
Americans burned through 140 billion gallons of gas and diesel in 2008. As a result, he said, “the ethanol industry and the Renewable Fuels Standard geared biofuel production to the market we thought we were going to have.”
In 2013, estimates call for Americans to consume 133 billion gallons of gas, which means only 13 billion gallons of ethanol will be needed from an industry set to distill 14 billion gallons.
“We’re going to over-produce (ethanol) this year,” Hart said.
Corn use for feed is also likely not to top out at the USDA’s forecast of 5.2 billion bushels, since the cattle industry is still shrinking and will continue to do so until at least 2015.
But although U.S. fuel demand is falling, Hart noted, gas use is rising quickly in developing nations, ramping up crude oil prices.
So there should be an export market for U.S. ethanol, he said.
“So this is a competitive market,” Hart said, that’s developing with a break-even margin.
“The big story is, this is the largest crop ever and we are still barely below cost. That’s how strong exports are.”
Since U.S. corn demand has never exceeded 13 billion bushels, Hart said the implications for 2014 are not good if it harvests another 14 billion bushel crop, especially if 2014 harvest starts with 2 billion bushels still in storage.
“Following a bumper crop,” Hart said, “even a normal crop in 2014 will drive down prices even further without additional demand.”
He thinks U.S. farmers will plant 95 million acres in corn in 2014 and will either idle lower-producing fields or switch them to pasture, soybeans or other niche crops.
The country will harvest 3.25 billion bushels of soybeans, according to USDA, and demand will leave just 170 mb, or 19 percent of the crop, in storage at the end of August 2014.
Hart said the U.S. will produce 200 mb of soybeans over 2012, “demand is trying to keep up. But the next biggest crop (in South America) is just six months away.”
In 2012 and 2013, Brazil matched the U.S. in soybean production.
“Look to exports to eat through the supply,” Hart said.
USDA reports said from Sept. 1 to Nov. 1, U.S. soybean exports are well ahead of both 2011 and 2012.
In the short-term, Hart said markets are favoring soybeans in profitability, but corn in the long-term.
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