The sky appears to be the limit on corn prices these days, and everyone wants to know the eventual top. University of Illinois economists have released a publication titled “Alternative 2011 Corn Production, Consumption and Price Scenarios” that predicts U.S. corn prices under various scenarios which can affect the upcoming growing season.
The publication, by Darrel Good and Scott Irwin, agricultural economists, looks at the forces shaping both supply and demand over the coming year. Highlights of the report include:
• A discussion of 2011 yield scenarios, using a long-term yield based on data since 1960. That trend provides an estimate of 158.4 bushels per acre for 2011, and the economists use 158 bushels in their supply and demand forecasts.
• Good and Irwin demonstrate yield variability and derive “good weather” and “bad weather” yields by de-trending the historical yield data so that past years reflect 2011 technology.
• The authors assume that 92 million acres will be planted to corn this year, which is on the high side of some early forecasts. That planted acreage would imply 84.9 million harvested acres.
• Trend yield of 158 bushels per acre would mean the 2011 crop would be 13.414 billion bushels, and total supply would be 14.1 billion bushels — down 0.75 billion bushels from the current crop year. The “good weather yield” (169 bushels per acre) would produce a 14.35 billion-bushel crop and just over 15 billion in total supply. The “poor weather yield” of 147 bushels per acre would mean just 12.48 billion bushels harvested and 13.176 billion of total supply, 1 billion bushels less than this year.
• Good and Irwin also discuss factors that will determine corn usage in the coming year. Exports and non-ethanol industrial use (primarily high-fructose corn syrup) do not change much in response to corn prices. Feed demand is more responsive, but strong livestock prices imply strong feed demand in the coming year.
Oil, gasoline and ethanol prices suggest very strong corn demand. Good and Irwin include “shut-down” corn prices for ethanol plants at various oil and gasoline prices. For example, at $110-per-barrel oil and $3-per-gallon wholesale gasoline prices, they estimate the shut-down corn price would be $9.78 per bushel.
• Good and Irwin forecast an average U.S. farm corn price at $5.75 per bushel for trend yield, $4.75 per bushel for “good weather yields” and $7 per bushel for “poor weather yields.”
Go to http://tinyurl.com/6cv8hcm to read the full report.