click image to zoom The upcoming USDA WASDE supply/demand report is arguably the most important one of the year so far. This will be the first report that USDA estimates of corn and soybean yields will be based on actual observations rather than trend yields and assumptions. Private forecasters have been steadily lowering their projections of grain supplies in recent weeks as lack of moisture across much of the Corn Belt has devastated output potential. As we noted back in June, the amount of harvested acres will be particularly important this year. There are plenty of reports that some farmers in the Eastern Corn Belt, particularly in Illinois and Indiana have experienced complete crop failure. Analysts polled ahead of the report indicate that on average they expect harvested acres to be 86.4 million acres, 2.5 million acres smaller than what USDA had expected back in July. The ratio of harvested to planted acres is currently projected at 89.6%. This ratio in 1988/89 was 86% and in 1983/84 it was 85.5%. It is a critical number as each 1 million acre reduction in harvested acres will remove some 127 million bushels (depending on your yield assumptions) from the overall balance sheet. If crop losses are similar to what we had in 1988/89, harvested acres could be some 3.5 million lower than the average of current analyst estimates, representing almost 450 million bushels of corn production.
The most critical number in the report remains the expected yield from the current corn crop. At this point there is a very large spread between analyst yield estimates. On average, the analysts polled by ThomsonReuters indicated that they expect US corn crop yields to be 127.3 bushels per acre. This is 18.7 bushels per acre (12.8%) lower than the USDA July estimate and 38.7 bushels per acre (23.3%) lower than the USDA June estimate. And some analysts believe that the yield of 127 bushels per acre may still be too high. Indeed, seven of the nineteen analysts polled by ThomsonReuters for their survey indicated they expect corn yields to be 125 bushels per acre or less. What do current yield estimates portend for the size of the US corn crop and feed use? In one word: rationing. Analysts on average expect corn production to be 11.026 billion bushels. This is almost 2 billion bushels smaller than what USDA projected in July and a staggering 3.8 billion bushels smaller than what USDA projected only two months ago. The graphic to the right shows one potential way how the production of 11 billion bushels or so and the carryover of 924 million bushels from this year may be divvied up in the next marketing year. A couple of critical caveats for the graphic: a) what happens if harvested acres resemble 1988 (remove 450 million bushels in available supply; b) what happens if corn yields are below 125 million bushels (remove 88 mil bushels for each 1 bu. drop in yields). Given current estimated yields and production, we could see corn used for feed drop by some 870 million bushels compared to 2011/12, even less should yields and harvested acres decline further. Let the rationing begin.