The drought of 2012 will be ranked as one of the worst in the last 100 years, standing out for its scope and intensity, reminiscent of previous drought years 1980, 1983, and probably most similar to 1988.
The corn crop took a hit. Production is down 13 percent from 2011 and 27 percent below USDA’s pre-drought spring estimates of a record-shattering 14.8 billion bushels. At an estimated 10.7 billion bushels, this is the smallest corn crop in six years.
The focus now is on demand. Overall, the corn market must slow consumption enough to wind up with corn stocks as of Sept. 1, 2013, at 600 to 700 million bushels. That means corn use in 2012/13 must be cut by 1.3 to 1.4 billion bushels from last season. This would be the largest decline in absolute terms in history and would be the largest year-over-year cut in percentage terms since 1974/75. Note that the short crops in the 1980s were supplemented by large stocks in storage, which cushioned the decline in use. That’s not the case this year. Demand rationing must be accomplished through market forces which will play out over the next several months.
How is demand shaping up? Exports have already garnered much attention. They are reported weekly, making them easy to track. Export commitments thus far in 2012/13 have been dismal, down 45 percent to 50 percent from a year ago and the five-year average.
Doane forecasts exports for the marketing year at only 1.2 billion bushels, down 22 percent from a year ago. If realized, this would be the lowest export total in nearly 40 years.
The poor pace of exports has been negative for the market. Importing countries have relied on South America and Ukraine to meet their import needs. However, South American supplies are nearly exhausted. The Ukraine faces icy ports and quality concerns that could limit buying interest. Also, the European Union is likely to supplement reduced production with additional imports from the Ukraine. U.S. exports got off to a poor start, but are expected to improve in early 2013. However, low water and shipping restrictions or even closure of Mississippi River from St. Louis, Mo., to Cairo, Ill., is a concern. Shippers are working on alternative rail shipments to the Gulf and increased exports out of the Pacific Northwest.
The ethanol situation is generally positive for the corn market. The Environmental Protection Agency denied requests to waive the ethanol mandate. The corn-based Renewable Fuel Standard climbs 600,000 gallons in 2013 to 13.8 billion. The corn-for-ethanol forecast for 2012/13 is 4.5 billion bushels.