USDA will release the first forecasts of this year’s corn and soybean crops on Aug. 12. Those forecasts are based on a large survey of producers and objective yield data gathered in the largest production states.
The first production forecasts are always important and much anticipated. Actual production can deviate substantially from the August forecasts, but those forecasts provide important benchmarks for judging the eventual crop size. “They are starting points from which the market evaluates the impact of subsequent weather and crop developments. While always important, the August forecasts take on additional importance this year,” says Darrel Good, agricultural economist, University of Illinois.
This year’s corn crop size has important price implications for two reasons. First, inventories of old crop corn at the beginning of the 2010/2011 marketing year are expected to be relatively small. USDA’s June stocks estimate created some uncertainty about the size of the 2009 crop, the rate of domestic consumption, and prospects for year ending stocks, Good notes. Still, those stocks are likely to be less than 1.5 billion bushels, or about 11 percent of projected consumption.
Second, it appears that there will be strong demand for U.S. corn during the 2010/2011 marketing year. Domestically, ethanol production is expected to continue to expand. “At a minimum, growth will be in line with the mandated levels of biofuels production,” Good says. “Growth beyond that will depend on the fate of the blenders tax credit that expires at the end of 2010 and on the Environmental Protection Agency’s decision about increasing the blend rate.” Global wheat prospects are turning bleak, and that may boost export demand for U.S. corn. Wheat crops in Canada, Russia, and Kazakhstan are all suffering. Although current wheat stocks are large, smaller crops this year and the resulting higher prices of wheat could impact corn and other feedgrains. Exports may get a further boost if China needs to import more corn, Good adds.
For soybeans, the size of the 2010 U.S. crop may have slightly less importance than the size of the corn crop. Stocks at the beginning of the 2010/2011 marketing year will be small, currently forecast at 175 million bushels or 5 percent of projected consumption, Good points out. “There would be opportunity for South American producers to adjust their planting decisions to the likely size of the U.S. crop,” he adds. ”Still, price might need to adjust, at least in the short run, to motivate either an increase or decrease in area planted in South America.”
Yield expectations of the 2010 crops range widely, particularly for corn. “Private firms that tend to be most closely followed have projections in the 166- to 167- bushel range, well above the record yield of 164.7 bushels last year,” Good notes. There are few, if any, forecasts below 160 bushels. “Our expectations for 2010 average yields are guided by yield models that reflect the impact of trend, planting date, growing season weather in Iowa, Illinois, and Indiana, and U.S. crop condition ratings.” The details of model specification and forecasting procedures were reported last year. Those models have been updated to include 2009 results.
University of Illinois’ forecast for the 2010 average corn yield is based on crop condition ratings as of Aug. 1, weather through July, and equal chances that August weather will replicate that of each of the past 50 years. The result is a forecast of 158.1 bushels per acre. “Unlike last year when the crop yielded better than it looked because of very favorable summer weather (cool and wet), our analysis suggests that the 2010 yield will be lower than implied by crop condition ratings alone.” Good says. “The expected shortfall is due to excessive June precipitation and above average summer temperature.”
For soybeans, the model points to a 2010 U.S. average yield of 43.7 bushels, very near the record 44 bushels of last year. That forecast is within the range of expectations being reported.
While the yield models performed well in 2009, Good emphasizes that the models do not capture all of the factors that influence yield and that actual August weather is yet to be determined. “The result is that the models have relatively large forecast errors so that confidence in the specific forecasts is limited. Still, the results suggest that the final 2010 yield estimate for corn could be below current market expectations,” he says.
Source: University of Illinois