Ag Economist Good Offers Thoughts Following USDA Report
University of Illinois Ag Economist Darrel Good says price behavior since the release of USDA's latest crop production report suggests the corn and soybean markets believe production forecasts will increase and/or prices are already high enough to motivate the necessary rationing. But he says it may be premature to draw those conclusions. He says prices will now begin to reflect expectations for production forecast changes and confirmation that the necessary rationing is occurring. Good adds that weekly reports of exports, ethanol production and broiler placements - as well as monthly reports of domestic soybean crush, cattle feedlot inventories and dairy cow numbers - will indicate the pace of consumption.
Final production estimates are released by USDA in January. According to Good - expectations for changes in yield forecasts this year are partially influenced by changes in those forecasts in previous dry growing seasons and by weather conditions the rest of this month - particularly for soybeans. He says the history of changes in yield forecasts in dry years provides a mixed picture - especially for corn. The U.S. average corn yield estimate in January following harvest was below the August forecast by more than 18-bushels in 1983. It was off by just over 12-bushels in 1995 and 2010. The yield estimate in January was above the August forecast in 1988, 1991 and 2002. The biggest increase was 6.1-bushels in 1988. For soybeans - the January estimate has come in below the August forecast several times. The biggest change was six-bushels in 2003. The January estimate was above the August forecast in 1988 - by just .8-bushel. Good says current expectations for corn appear to be in a range of five-bushels above to five- bushels below the August forecast of 123.4-bushels. Expectations for soybeans are 1 or 2 bushels above to 1 or 2 bushels below the August forecast of 36.1 bushels.
Based on the August production forecasts - Good says the USDA's World Agricultural Supply and Demand Estimates August report projected minimum 2012-13 marketing year-ending stocks for both corn and soybeans. Even with larger imports and a draw down in stocks - he says consumption of U.S corn needs to decline by 1.265-billion bushels - or 10.1-percent. He says consumption of U.S. soybeans needs to decline by 399-million bushels - or 12.7-percent during the year ahead. Good says ethanol demand is going to depend on a number of factors. However - he says the transition to a heavy dependence on ethanol as an octane enhancer and the low price of ethanol relative to gasoline suggests that the decline in corn used for ethanol will be less than 500-million bushels. Good says that conclusion would not change even with a partial waiver of the mandate.
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