Corn prices managed a small rally following the USDA’s Nov. 8 Crop Production report that contained a corn production forecast that was not quite as large as feared. Since then, however, new lows have been established and prices are currently only about 10 cents above the pre-report level.
According to University of Illinois agricultural economist Darrel Good, the recent corn market commentary has been dominated by two themes. One is that the USDA’s production estimate to be released in January will be larger than the November forecast. The second is that corn consumption for ethanol production will be negatively impacted if EPA’s preliminary rule making for the Renewable Fuels Standards (RFS) for 2014 is actually implemented. Good said that both of these expectations are questionable.
“Any change in the January corn production estimate from the November forecast would be the result of a change in either, or both, the estimate of acreage harvested for grain or the U.S. average yield,” Good said. “The November National Agricultural Statistics Service (NASS) planted acreage estimate was fully consistent with the USDA’s Farm Service Agency (FSA) report of planted acreage. Over the previous 10 years, the January U.S. average yield estimate was above the November yield forecast five times and below the forecast five times. Even in the five years when the November yield forecast exceeded the September forecast, as it did this year, the January estimate was below the November forecast twice. Considering the previous 30 years, the January yield estimate was above the November forecast 16 times and unchanged or lower 14 times,” he said.
Good said that historically, the January corn production forecast was more heavily influenced by changes in acreage estimates than is currently the case because administrative data (primarily FSA-certified acreage data) were not fully incorporated in the NASS estimates until then. More recently, that data have been incorporated in the October production forecast (November this year). In the six years since 2003, in which the January production estimate exceeded the November forecast, the difference exceeded 80 million bushels of corn only in 2009 (230 million bushels). In the four years when the January production forecast was smaller than the November forecast, the difference ranged from 93 to 210 million bushels.
“Recent history suggests that there is a small probability that the January production estimate this year will be large enough to substantially alter expectations of year-ending stocks,” Good said. “The price impact of the production estimate, however, will be co-mingled with the price response to the estimate of Dec. 1, 2013, corn stocks to be released on the same day,” he said.