The USDA Supply-Demand report on August 11 seemed to catch market participants by surprise when it lowered estimated corn yields to 153 bu./acre, the same level as the dismal yields of the previous year. It now appears that the damage to the corn crop has been even more significant than this lower forecast indicates.
Indeed, there has been much speculation recently about the effect that high overnight temperatures had on the developing corn crop. Now we are getting some actual field observations and the results are not encouraging. Every year, Pro-Farmer sends a group of professional farmers and crop scouts along a predetermined route across the Midwest and collects samples of the maturing crop. The results of their empirical observations trickled in for much of the week, and for the most part they were worse than most expected. On Friday, the group published their final estimate of the U.S. corn crop, pegging it at a dismal 147.9 bu./acre, 3.3% lower than the USDA August estimates. It is still early to have a firm grasp of corn yields, and the late plantings all but assure that we will not know the size of the final crop until well into October.
Some late rains could benefit the crop in Ohio, Iowa and other areas and help boost yields. There are plenty of livestock and poultry producers who are hoping that the corn harvest somehow turns out better than recent dismal predictions but it is a good idea to start preparing for the worst and hope for the best.
USDA estimates pegged corn ending stocks at 714 million bushels, or 5.4% of total use. If the Pro-Farmer yields materialize, corn production could subtract another 430 million bushels from the already tight supply, pushing ending stocks to an impossible 233 million bushels or 1.8% of use. Clearly this is not going to happen, implying that corn use will have to decline further to maintain minimum pipeline supplies of around 660 mil bushels. At this time, it appears that the favorite place to look for such reductions is the feed complex, implying significant reductions in beef, pork and poultry output.
Finally, one can look at even lower exports but strong demand in China and other areas as well as a weaker dollar makes that a difficult challenge. The corn crop is not progressing well, and given the disconnect between current feed and meat protein prices, the livestock and poultry industry is looking at even more painful cutbacks in 2012.