Price Expectations Hinge on The 2009/10 Crop Avoiding Jack Frost

corntruckYou can almost feel it in the air. Over the last week here in southwestern Ontario the weather has been very warm, hot almost, and producers are hoping the crops appreciate it. Of course the question is: Has a cool June and July and a late start effectively put us on a watch for a frost date to September?
The last time we had this type of year in Ontario it was 2005. That was the year we got off to a late start and September and October came and it was wide open with very warm days. That meant we had an Ontario corn yield of 145 bushels per acre. Looking ahead with all the different production problems we have in this province I think 145 bushels per acre for corn is about the best we can hope for.
Of course last week we had the USDA chiming in with their revised acreage and estimates of yield. The USDA came out and said that American farmers would produce a yield of 159.5 bushels per acre of corn and 41.7 bushels of soybeans. That means we are looking at a corn crop of 12.76 billion bushels and soybeans coming in at 3.19 billion bushels.
I was expecting a bit higher corn yield. I know that 159.5 bushels per acre is much higher than the July estimate of 153.4 and it would represent the second biggest crop in American history. However something tells me this year that the corn yields especially in the Western Corn Belt are going to be off the chart. I’m just guessing here but I’ve had the figure of 163 bushels per acre in my mind for quite some time.
The USDA pegged ethanol demand to be maintained at 4.2 million bushels of corn for the 2009/10-crop year. I have wondered how solid that is because ethanol demand is still very important for the overall corn demand outlook. I asked that question to Darin Newsom during the post-USDA webinar last Wednesday. Darin said he thought it was a solid number and in fact with corn prices down we might expect that number to expand as a crop year unfolds. That gave me a bit of light at the end of this corn tunnel.
The thing I don’t think I’ll ever understand is why the USDA refuses to entertain dropping the soybean ending stock number below a hundred million bushels. It is pretty obvious that ending stocks for old-crop soybeans are extremely tight; in fact so tight nobody really knows what they are. Regardless, the USDA continues to punch that soybean ending stock number at 110 million bushels.
Of course these USDA reports generally painted a fairly bearish picture in the short-term. We’ve been talking about that for the last eight weeks. Nevertheless, the proverbial monkey wrench in the transmission with all this big crop talk is a bad fall with an early September frost. In Ontario the provincial Ministry is looking at maybe 10 to 20 percent of the Ontario corn crop, which may be at risk of September frost. This portion of the Ontario corn crop is just pollinating now as of about August 10. So in a worst-case scenario 386,000 acres is at risk in Ontario, which represents about 54,000,000 bushels of corn.
Looking ahead it makes it very difficult to know about new-crop basis for corn, what is good and what is bad. For instance looking ahead, October 1st might serve as a calendar benchmark of how much Ontario corn isn’t going to make it. By that time everybody should know whether those 386,000 acres are still at risk. The same might hold true for the bigger United States corn crop, although the litmus test for that will come much earlier.
Let’s remember that the days are growing much shorter now and that means there is less radiation from the sun for grain fill. If you translate that across the greater American Corn Belt plus Ontario and Qu‚bec, it means even though corn looks great now that late start to planting really hurt us. Those 200-bushel yields some people are expecting in southwestern Ontario might not get there even with good weather.
The road ahead to harvest time will surely have something to say about this. From my perspective the 159.5-bushel USDA yield projection coupled with the fact that the crop is late going into September are major factors in price discovery moving ahead. The 159.5-bushel yield I think everybody wants to talk about. However, having Jack Frost come out on some mid-September morning nobody even wants to think about that.
One thing that came out of the August 12 USDA report was that global demand is still pretty strong for corn and soybeans. It’s almost like demand to some extent has hung in there even during a worldwide recession. Needless to say in agriculture sometimes calamities lurk around the corner. I had a neighbor stop in today and tell me he has found aphids in the soybeans all throughout my farming area. It just goes to show you as much as we try to measure what’s ahead; there is enough uncertainty out there to keep prices hopping. The next six weeks should surely make or break this crop year.