Corn prices have dropped about 40¢ since the USDA May 9 WASDE report. University of Illinois agriculture economist Darrel Good says that “the recent price decline appears to reflect a combination of declining wheat prices and prospects for a build-up in corn stocks during the 2014-15 marketing year.”
July wheat futures prices at Kansas City (hard red winter wheat) have declined about $0.90 per bushel since May 6. The USDA's May winter wheat production forecast exceeded market expectations and concerns about the impact of extremely dry weather on the size of the hard red winter wheat crop have likely peaked. Prospects for a build-up of corn and total feed grain stocks during the upcoming marketing year center on the U.S.
Projections for the U.S. corn market include expectations of a crop slightly larger than the record crop of 2013, a decline in both feed and residual use and exports, and a year-over-year increase in ending stocks of 580 million bushels. The market was surprised by the forecast of declining consumption and the resulting size of the expected build-up in year ending stocks. Prospects of a record large crop and record livestock feeding margins created expectations of larger feed and residual use of corn next year rather than smaller use. Similarly, the projected year-over-year decline in Chinese corn imports was a bit of a surprise.
Some early concerns about the 2014 U.S. corn crop due to a slow start to the planting season have mostly dissipated. Concerns were mostly alleviated by the USDA's weekly Crop Progress report that indicated that planting progress in the 18 major corn producing states had caught up to average progress by May 11. There is now an expectation that the percentage of the crop planted late will not exceed the average percentage by a significant amount.
Timely planting keeps yield expectations high. In addition, the outlook for summer weather is generally supportive for crop development. Still, there should be some concern about crop progress and yield prospects in northern growing areas where planting progress was well behind the average pace as of May 11. The USDA's Acreage report to be released on June 30 will also reveal any acreage changes from intentions revealed in the March survey.
Even though the current corn price decline seems to be a little premature given the strong pace of consumption and production uncertainty, a turn-around will likely require more convincing evidence of tighter balance sheets. In regards the old-crop balance sheet, the June 1 stocks estimate will be most important for updating year-end stocks estimates. New-crop prospects will obviously unfold over a much longer time period. December corn futures have declined to within 15¢ of the spring projected price for crop revenue insurance, limiting further downside risk for the 2014 crop for those with high levels of revenue insurance coverage.
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