Economists see corn price pressure
In a July 3 2018 Crop Outlook report from Purdue University’s Center for Commercial Agriculture, Chris Hurt, a professor in Purdue’s Department of Agricultural Economics, said recent USDA reports were largely consistent with expectations.
On the yield front, Hurt said corn has increased while soybean and wheat crops are steady.
“We’re up by about 43 million bushels, but that’s not really much,” he said. “There is a slight tone of bearishness, but I think most people in the trade would not this is note much of a change.”
Soybeans and wheat were neutral, which means that markets are largely unaffected as reports aligned with expectations.
However, acreage predictions showed some surprises.
“We saw about 760,000 corn acres. That’s what the trade had been expecting. It’s a touch bearish. Soybeans are a neutral, with acreage just a bit below expectations,” Hurt explained. “We also saw more wheat acreage, and spring wheat acreage was up by 790,000 acres. Strong prices encouraged more spring wheat, which is part of the reason why we got more acreage. This is a little bearish for wheat.”
Overall, soybean acres topped corn acres, with 89.6 million acres planted to soybeans compared to 89.1 million acres in corn.
“Since 2012, the push has been to move towards soybeans, and this has been a strong movement,” he said. “This has implications as we look towards next year and potential tariffs on soybeans.”
Hurt noted tariffs may influence a shift back to corn from soybeans, but the actual impact is yet to be determined as trade talks continue.
Overall, approximately 3 million more acres have been planted since last year. Of that, 1.1 million is in corn, 0.6 million in beans and 0.5 in wheat.
“With more corn acres, we’re also seeing better yields, which is not necessarily what we wanted to see for prices,” Hurt said. “We’re seeing more acres and more yield this year.”
Price decline
A recent decline in corn prices is a two-fold issue – impressive yield and uncertainty surrounding tariffs.
“The yield USDA is using is 174 bushels, which is not an evaluation for this year but a trend yield,” Hurt said, who noted crop ratings suggest yield will be up to 178.6 bushels per acre, which is up from USDA estimates.
The same is true for soybeans, though the increase is not as substantial in yields.
“This is a good crop at this point according to USDA weekly crop ratings,” Hurt commented. “As we look at ratings towards the end of September, those are significantly related to yield. The July 4 ratings have been shown to be 80-plus percent correlated with final yields.”
Weather forecast
Because of the impact weather also plays in crop conditions, Hurt says conditions are in the 85th to 90th percentile for crop conditions.
“As we might guess, we’ve tended to run higher temperatures in recent years, and National Weather Service continues to suggest we’ll have higher temperatures in the Midwest,” Hurt explained. “In much of the Corn Belt, we have an equal chance of above, below or near normal precipitation. National Weather Service can’t see anything to make the call of an above- or below-normal prediction.”
“We have above normal temperatures, rain in the next week and drying in the Corn Belt,” he said. “The whole period doesn’t suggest we’ll get a hot, dry period that gets the crop into trouble. We can’t count on a recovery in price as a result of weather stress.”
While some areas experienced too much rain and others are a little dry, Hurt said, “There’s no reason to believe this won’t be a high-yielding crop.”
Ending stocks
In 2017 and 2018, ending stocks on corn have tightened.
“The anticipation that we had started to reduce inventories in 2017 had people believing 2018 was going to be the turn-around for farm prices,” Hurt said. “However, we’ll go from 10.8 percent stock-to-use to 13.2 percent. Some of the bullishness that we were going to turn the corner for corn has taken away from the potential.”
Soybeans saw the same trend, with an increase in ending stocks from 8.7 percent to 10.8 percent.
December corn futures ranged from a high of $4.30 in late May to a low of $3.58 on June 26.
“We’ll watch the market closely to see if we bounce off this low,” Hurt commented. “The weather in the next few weeks will test whether we found the low, and we also have implications from tariffs. Right now, we don’t think tariffs will take corn prices substantially lower.”
Hurt added, “There are fundamental reasons for price declines in corn and soybean markets, but there’s also uncertainty that arises from tariffs and our exports.”
Saige Albert is managing editor of the Wyoming Livestock Roundup. Send comments on this article to saige@wylr.net.
