News | Agriculture

Surplus U.S. crop means lower prices; need to stimulate use

WEST LAFAYETTE, Ind. — This year could be another record-setting year for U.S. corn production, said Purdue University’s Chris Hurt, who believes those numbers will be reflected in the U.S. Department of Agriculture’s Sept. 12 Crop Production report.

This year could be another record-setting year for U.S. corn production, said Purdue Extension agriculture economist, Chris Hurt.

This year could be another record-setting year for U.S. corn production, said Purdue Extension agriculture economist, Chris Hurt.

USDA’s August estimate for corn was 159.5 bushels per acre for the average yield — 3 bushels per acre above trend — which was bold at that time, according to the Purdue Extension agriculture economist. As the crop progressed in August, Hurt questioned: “Is that number high enough? Is it fairly accurate? Has the crop improved, in terms of yield potential, since early August?”

“I think we’ll see the September estimate for corn at about 161.5 bushels per acre.”

He is aware some might not agree with the estimate, given the less than ideal crop year. Spring was extremely wet, preventing many farmers from getting into their fields on time.

However, Hurt believes the sufficient moisture and moderate weather conditions have given the crop an opportunity to increase the grain count for corn and the pod count for soybeans, as well as grain fill or the weight of the seed.

“We’ll see record yields on corn,” Hurt said. “Could this year end up being that mammoth of a yield like we had in 2004?”

He compares this year’s crop to then.

“A year much like this one, in terms of moderate weather during the growing season, 2004 ended with record yields at 160.4 bushels per acre,” Hurt said. “I think we’ll take that out in the September estimate at about 161.5.

“In looking back, the USDA weekly crop ratings track about like they did in 2004. It’s the best crop we’ve seen, and I think corn may end up slightly better this year, because in 2004 we saw declines in late August and on into September.”

Unless there is a frost, Hurt expects the crop to continue to look good and even improve a little.

Hurt also noted that in 2004, yields were about 10 percent above trend. If that were to happen again, that would put yields in the upper 160-bushel-per-acre range — close to 170 bushels per acre, he said.

“It’s too early to talk about yields that good, but we could certainly begin to think that there’s potential for yields to be in the mid-160s,” Hurt said. “I don’t think the market is thinking a number quite that high at this point. We would make new contract low prices on corn if it would move on up into the mid-160-bushel-per-acre range, and this means vulnerability on the downside of prices.”

For soybeans, the crop rating is the highest rating in recent years, Hurt pointed out.

In early August, USDA had soybean estimates at 41.7 bushels per acre, which was below trend, said Hurt, who believes they were right in their estimate.

“The beans had a long way to go, but they’ve come a long way since early August and from what can be seen on the weather forecast, weather is not going to be a threatening factor in September,” Hurt said. “I think we can be above trend this year. The previous record is 43 bushels per acre, and I’m looking for the USDA’s September number to push us on up — eventually going above that 43-bushel-per-acre record yield range going into October.”

This means there is going to be a lot of corn and soybeans, and prices are going to decrease to get end users to come in and buy more of this crop, Hurt explained.

Soybean carryover may increase from extremely tight supplies of 110 million bushels in early September, according to Hurt, who expects to see that triple and move up to 300 million bushels by the end of the 2009-2010 marketing year.

“Again, there are some price depressing forces on soybeans, but the worst might not come until we see the size of the South American crop as we go into January, February and March of 2010,” he said.

From a strategy standpoint, Hurt said this year has a different look.

“We’re likely to see good returns for corn storage — depressed prices at harvest time and above normal price appreciation going into next spring and summer,” he said. “With soybeans, we have the threat of a return to normal yields in South America and that alone would add about 800 billion bushels more world production.

“The fear then is that our exports really drop off for soybeans in the spring and summer of 2010 and we actually end up seeing lower prices. If soybean prices are around $9 out of the field this fall, we could see soybeans under $9 next spring and summer.”

However, he said a lot will depend on world demand, the value of the dollar and the ultimate size of the U.S. and South American crops.

“We’re really in a different situation now than we’ve been in,” Hurt said. “The last three years, we’ve tended to see shortages in the world market and prices had to be high to get end users to cut back.

“Now we are on the other side. Big crops in the United States could mean that we have to depress prices to get more end users to come into the market and, for now, it looks like we’ve tilted a little bit back to the old days of surplus production and lower prices to stimulate use.

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