Fall harvest insurance prices end with corn at $4.39 and soybeans at $12.86 vs. spring average prices of $5.65 for corn and $12.87 for soybeans. This ensures some healthy crop insurance for those producers who had sub-average yields. The problem, however, moving forward is the 2014/15 insurance guarantees. Remember, the spring insurance price is based on the average of the Dec14 corn contract and the Nov14 soybean contract during the month of February 2014. Keep in mind this is the same time the funds and large traders will be bracing for the end-of-month USDA ag outlook data. Data like that could paint a very burdensome supply picture, especially if you assume the USDA is going to start out using a 164-167 type yield estimate.
International Grain Council Raising Production Estimates: The IGC raised its world grain forecast for 2013/14 by 10 million tons to 1.94 billion on upgrades of both corn and wheat yields. Wheat production was pushed higher by 4 million tons to a NEW record of 696 million; inventories were raised by 2 million. Global corn production was raised by 5 million metric tons to 948 million, basically on better-than-expected U.S. yields. World corn stocks were raised by 4 million metric tons. The kicker is stocks in the major exporting countries have jumped by over 80% and now stand at a 26-year high of 64 million metric tons.
Acres: The question starting to pop up is, what about next years acreage? Obviously the trade is already under the assumption that South America is going to produce a much larger soybean crop and a smaller corn crop. In fact you can argue is that soy production may jump by 15 million metric tons and corn production could fall by 10 million metric tons. Not only are we seeing a reduction in full-season and second-crop corn acres, but we also need to remember terrific weather and growing conditions for second-crop corn the past couple of years have really helped boost the South American production.
My point is, if you were to get a substantial acreage setback along with a weather related hiccup, a significant reduction in South American corn production could be around the next corner.
Here at home a similar situation seems to is playing out for the 2014 crop, despite what some analyst believe to be a more optimal corn planting environment. With the 2014 corn-to-soybean ratio at 2.45, one can argue a case in either direction. Corn "traders" want to argue that with the price setbacks in fertilizer and the beck-end ratio not overly inflated (like the front-end), U.S. producers will once again opt to roll out big corn acres. Corn "producers," those who are ultimately going to make the decision, will argue a completely different scenario. Most are looking at the $200-250 non-land cost savings that are associated with planting soybeans over corn as a smart play. Essentially producers are saying that by swapping more corn acres to bean acres, along with the reduction in fertilizer costs, it will help them dramatically lower their overall expenses or potential losses. Making the total cost of revenue needed per acre certainly more palatable.
Keep in mind the corn-on-corn guys are finding it tough to consistently harvest good yields with extreme weather volatility. Taking some of the production risk and high input costs associated with corn definitely takes some of the risk out of the equation. On the flip side it also takes some of the upside potential away as well. I should also point out that some of the new first or second year corn producers aren't finding it to be a lot of fun, as the costs are stiff and the production is very erratic.
Net-net, I have to believe we are going to see a large than normal number of "corn-on-corn" producers looking for alternatives, beans are obviously the logical choice. INFORMA (up to this point) seems to be thinking similar thoughts as they most recently raised their estimates for 2014 soybean acres to 83.9 million vs. just 77.2 million soy acres planted this past year. On the flip side the have most recently lowered their 2014 corn acres down to 91.7 million vs. this years current planted acreage estimate of 97.4 million acres.