“Folks were expecting to see a drop in average yields from last month’s report because of poor late-season weather conditions across much of the Corn Belt, but nobody was forecasting this big of a drop in the corn crop,” says John Anderson, an American Farm Bureau Federation economist.
Surprise is an understatement. In Friday’s crop report, USDA decreased the estimated corn crop by a staggering 4%. Average estimated corn yield declined 6.7 bu./acre to 155.8 bu./acre compared to September estimates. All told, this year’s crop is estimated to be 12.664 billion bu., not the record crop estimated through last month’s report, and below last year’s record crop of 13.11 billion bu.
On one hand, there’s plenty of corn to go around. According to the National Corn Growers Association (NCGA), the estimated harvest of 12.7 billion bu. is the third-largest crop in history and will still provide a surplus, or ending stocks, of nearly 1 billion bu.
“A global perspective is important,” says NCGA President Bart Schott, a grower in Kulm, ND. “Global coarse grain supplies are nearly unchanged, and lower U.S. supplies are offset by increased foreign grain production. We expect farmers in South America to respond to these market signals, just as we know U.S. farmers will do when it comes time to make planting decisions for the 2011 crop.”
Further, Schott points out only 37% of the U.S. corn crop was harvested by Oct. 3, and much of what has been harvested to date was in areas most adversely impacted by the summer weather. So, NCGA analysts see the potential for an upward adjustment in overall production as harvest is completed.
On the other hand, Friday’s World Agricultural Supply and Demand Estimates (WASDE) pushed ending stocks, as a percentage of total use, to the lowest level in 15 years. WASDE estimated season average corn prices increased 50¢ on the lower end of the range and 70¢ on the higher end to $4.00-$4.80/bu.
All of that is another way of saying that calf and feeder prices continue to decline in the face of higher grain prices (see "Feeder Futures Crumble"). Feeder-cattle futures prices declined an average of $1.47 across the board Friday. They lost $3.50-$4.00 from the previous Friday’s close. Truck bids for corn were 25¢-35¢ higher Friday, according to the USDA Daily National Grain Market Summary.
“Corn producers will welcome the higher price, but livestock and dairy producers will have to pay more than they expected for feed,” Anderson says.
Keep in mind, the Environmental Protection Agency (EPA) has yet to make a ruling on increasing the inclusion rate of ethanol in gasoline. As reported in the previous issue of BEEF Stocker Trends, that decision is expected in a matter of weeks. Various analysts expect EPA will either increase the minimum rate from 10% to 12% for all vehicles, or to 15% for newer vehicles. If so, the door is opened wide to further corn price increase.