Tomorrow’s USDA World Agricultural Supply and Demand Estimates report is arguably the most important of the year so far. This will be the first report that USDA estimates of corn and soybean yields will be based on actual observations rather than trend yields and assumptions.
Private forecasters have been steadily lowering their projections of grain supplies in recent weeks as lack of moisture across much of the Corn Belt has devastated output potential. As we noted back in June, the amount of harvested acres will be particularly important this year. There are plenty of reports that some farmers in the eastern Corn Belt, particularly in Illinois and Indiana, have experienced complete crop failure.
Analysts polled ahead of the report indicate that on average they expect harvested acres to be 86.4 million acres, 2.5 million acres smaller than what USDA had expected back in July.The ratio of harvested to planted acres is currently projected at 89.6%. This ratio in 1988/89 was 86%; in 1983/84 it was 85.5%. It is a critical number as each 1-million-acre reduction in harvested acres will remove some 127 million bu. (depending on your yield assumptions) from the overall balance sheet. If crop losses are similar to what we had in 1988/89, harvested acres could be some 3.5 million lower than the average of current analyst estimates, representing almost 450 million bu. of corn production.
The most critical number in the report remains the expected yield from the current corn crop. At this point there is a very large spread between analyst yield estimates. On average, the analysts polled by ThomsonReuters indicated they expect U.S. corn crop yields to be 127.3 bu./acre. This is 18.7 bu./acre (12.8%) lower than the USDA July estimate, and 38.7 bu./acre (23.3%) lower than the USDA June estimate.
And some analysts believe that the yield of 127 bu./acre may still be too high.
Indeed, seven of the 19 analysts polled by ThomsonReuters indicated they expect corn yields to be 125 bu./acre or less.
What do current yield estimates portend for the size of the U.S. corn crop and feed use? In one word: rationing. Analysts on average expect corn production to be 11.026 billion bu. This is almost 2 billion bu. fewer than what USDA projected in July and a staggering 3.8 billion bu. fewer than what USDA projected only two months ago.
The graphic below shows one potential way how the production of 11 billion bu. or so, and the carryover of 924 million bu. from this year, may be divvied up in the next marketing year. A couple of critical caveats for the graphic:
- What happens if harvested acres resemble 1988 (remove 450 million bu. in available supply?
- What happens if corn yields are below 125 million bu. (remove 88 million bu. for each 1 bu. drop in yields)?
Given current estimated yields and production, we could see corn used for feed drop by some 870 million bu. compared to 2011/12, even less should yields and harvested acres decline further.
Let the rationing begin.