Corn bulls are wondering just how high prices can climb on the heels of the soybean market. The bears are screaming that even though individual farmers are not talking about record yields, the US as a whole is still on track to break all previous production records for corn. If you remember it was back in 2009 that US farmers produced a record US crop of 13.151 billion bushels and prices in Sept of 2009 plummeted to $2.96^6 per bushel. I am certainly not calling for a repeat performance, but I do believe it is important to review and understand our history. Below are a few highlights and comparisons I think we need to consider:
- 2009 set a NEW record for US corn production at 13.151 billion bushels. This record still stands, but looks as if it could be beaten this year. The current USDA corn production total is estimated at 13.763 billion bushels.
- FWIW back in August of 2009 the USDA was projecting a crop of just 12.761 billion bushels, by Jan (the final report) that number jumped to 13.151 billion.
- Harvested acres in 2009 fell from 80 million in the Aug 2009 report down to 79.6 million acres. Meaning they only cut 400,000 from their Aug 2009 estimate. This time around there is talk the USDA could cut 2-3 million from their current harvested acreage estimate. This would still leaves us with 7-8 million more acres than in 2009.
- Planted acres were reported at 87 million in the August 2009 report. Final planted acres were adjusted down to 86.5 million. This year around we could be 10 million acres higher considering the current USDA estimate is that we planted 97.4 million corn acres.
- Yield estimate in the Aug 2009 report was at 159.5 bushels per acre, of which it eventually grew in size to 165.2 final yield estimate.
- Total corn usage was estimated at 12.875 billion back in Aug 2009 vs. a very similar 12.765 billion in the most recent Aug USDA report.
- Ending stocks were estimated at 1.621 billion in Aug of 2009 vs. the most recent USDA estimate of 1.837 billion. The big kicker and key to this entire puzzle is that "beginning stocks" in the Aug 2009 report were estimated at 1.720 billion bushels vs. just 719 million currently being estimated by the USDA. That means we had an extra 1 billion bushels in the pipeline compared to what we have available today. That makes a huge difference!
- Prices in return during Sept 2009 fell to $2.96^6.
The question is will the US corn crop get larger like it did in 2009? Will we collectively set a NEW record for production? Or will the yield setback even further while at the same time seeing major cuts in harvested acreage? We could obviously go either direction right now, but with a billion fewer bushels to rely on the trade is clearly more nervous. Producers should be looking to reduce just a little more new-crop risk on the rallies to insure profitability, but don't let the perma-bears talk you into selling out just yet. I am going to pull the trigger on another 5% fairly quickly, in an effort to get 70% priced/hedged. Remember, for most of us (with storage) we have at least another 12-months to market our remaining 30%. I am fairly confident we can be somewhat patient and selective with our efforts.
Soybeans have a similar history lesson with 2009 also being the largest in total production at 3.361 billion bushels vs. the USDA's current estimate of 3.255 billion. Below are few of the additional specifics and historical comparisons:
- Planted acreage in 2009 ended up being 77.5 million acres slightly higher than the current USDA estimate of 77.2 million. Remember the USDA cut their planted acreage estimate form 77.7 million in July down to 77.2 million.
- Harvested acreage in 2009 ended up being 76.4 million, the same exact harvested acreage number the USDA is currently using. The problem is a lot of folks are thinking the current harvested acreage number could 500,000 to 750,000 acres too high.
- Yield estimate in 2009 ended up at 44.0 bushels per acre vs. the current USDA yield estimate of 42.6. Keep in mind in the Aug 2009 report the yield was only estimated at 41.7 bushels per acre and dramatically increased to 44 bpa. We checked the weekly "crop condition" report dating back to late-Aug 2009 and it showed 69% of the crop in "Good-to- Excellent" condition vs. 58% in yesterdays USDA report. By late-Sep the conditions had only fallen by 2% down to 67% "Good-to-Excellent." Another interesting note is that back in 2009 the late-Sep condition report showed 63% of the soybean crop "dropping leaves" and 5% of the crop being harvested. The late-Aug 2009 report showed the 93% of crop "setting pods" vs. just 84% this year.
- Total usage in the Aug 2009 report was estimated 3.109 vs a very similar 3.176 billion estimate this year.
- Ending stocks were estimated at 210 million in Aug of 2009 vs current estimate of 220 million.
- Crush was estimated at 1.670 billion bushels vs. the 1.675 billion in the most recent Aug USDA report.
- Exports were estimated at 1.265 billion vs the current 1.385 billion in the latest USDA report.
- Beginning stocks, surprisingly, in the Aug 2009 report were estimated at just 110 million bushels vs. 125 million this year.
The big difference in my opinion is that the crop started drastically improving from August forward back in 2009. This year the trade is looking for it to continue declining. My only concern is that money-flow may have fictitiously inflated prices this time around. Especially when you consider we are hearing report after report that South America is going to plant NEW record bean acres. Essentially you have a similar US balance sheet but much larger South American production slated to be coming down the pipe. In comparison prices this time around are pushing $14.00 while at the end of Aug in 2009 prices had fallen below $10.00 and later, during the first week of Oct tumbled to $8.78^6. Moral of the story, perception is obviously everything. If the trade is correct and both yield and harvested acres continue to tumble then additional premium can be justified. If the trade is wrong and the yield stabilizes or surprises us in any fashion we are grossly overvalued.