Prospects for higher U.S. corn or old-crop soybean prices faded somewhat when USDA reported this week that U.S. farmers produced record-large corn and soybean crops in 2009.
"In analyzing the current state of the grain market, there is no escape from the fact that world wheat, coarse grain and oilseed markets have and are now trending toward increasing supplies," says Dan O´Brien, Kansas State University agricultural economist. "Under normal market circumstances, increasing grain and oilseed supplies would bring about lower prices as the market finds price levels low enough to `clear the market´ and move supplies from those who own grain to those who need it."

O´Brien notes that the United States had accumulated relatively large wheat supplies that will weigh on domestic wheat prices - absent major unforeseen influences from outside currency, financial or other grain markets.

Corn:

He points to USDA data that showed U.S. corn production in 2009 reached 13.2 billion bushels-- 1 percent above the 2007 record of 13 billion bushels and 9 percent higher than 2008. Corn yields reached an all-time high in 2009 at 165.2 bushels per acre. Planted area, at 86.5 million acres, is the second highest since 1949, behind 2007´s 93.5 million acres.

"Prospects and possibilities for higher U.S. corn prices have been diminished by the larger projected size of the 2009 U.S. crop," O´Brien says. "To the degree that larger supplies may have diminished the sensitivity of corn market participants to potential weather-
related crop threats in the 2010 growing season, prospects for market volatility and higher prices may be more limited now than before the January 2010 reports. However, any whittling down of the 2009 corn crop size in USDA reports throughout 2010 will be a supportive factor for U.S. corn prices."

Still, there remains uncertainty over the final size of the 2009 U.S. corn crop, as USDA estimated the U.S. corn harvest to be 95 percent complete on Dec. 20. Winter storms have severely limited harvest progress in some areas since then. "If 5 percent of the U.S. crop is still unharvested, that would amount to approximately 3.98 million acres," O'Brien notes. At the U.S. average yield of 165.2 bushels per acre, this amounts to 657.5 million bushels of the 2009 U.S. corn crop that still remains unharvested in 2010.  

"Whatever portion of this final 5 percent of the 2009 corn crop that may be unrecoverable or suffers from significant declines in quality while remaining in the field, it is likely to reduce the final 2009 estimate in future USDA Supply and Demand Reports as well as corn ending stocks projections for the 2009/2010 marketing year," he adds. 

Soybeans:

USDA reported that the 2009 soybean crop broke records for planted and harvested area as well as for yield and production. Soybean production totaled 3.36 billion bushels, up 13 percent from 2008 and up 5 percent from the 2006 record. Average yield per acre is 44 bushels, up 0.9 bushels from the previous record set in 2005. Farmers nationwide planted a total of 77.5 million soybean acres and harvested 76.4 million acres in 2009, both up 2 percent from the record set last year.

"Soybean old crop price prospects in the United States are expected to diminish -- perhaps markedly -- once South American soybean exports become available to the world market in the spring months," O´Brien notes. "Given the need for adequate corn and soybean acreage in 2010, it's still likely that there will be positive support for new crop CBOT 2010 December corn futures and November soybean futures - at least until the market is satisfied that adequate U.S. acreage is allocated to each crop sometime in early summer."

Grain sorghum:

Grain sorghum production, at 383 million bushels, is down 19 percent from 2008, according to USDA. Sorghum yields, at 69.4 bushels per acre, are down 4.4 bushels from last year. Planted area totaled 6.63 million acres, the third lowest on record, while harvested area is 5.52 million acres, down 24 percent from 2008.

Wheat: 

USDA also projected fall-seeded U.S. winter wheat area for harvest in 2010 at 37,097,000 acres. "This acreage figure is the lowest since 1913, and down 14 percent from 2009." O´Brien says. "Sizable decreases in seeded acreage are estimated for U.S. hard red winter wheat and soft red winter wheat, with a small decrease in white winter wheat. Seeded acreage for durum wheat in the western United States is lower, but with only a limited number of states having been seeded to date."

Seeded area for hard red winter wheat is expected to be 27.8 million acres in the United States for 2010, down 12 percent from the previous year. A combination of late row crop harvest, poor weather conditions at seeding and relatively low prices and income prospects for wheat compared to other available crop enterprises were cited as reasons for the acreage decline, O´Brien notes.   

In the Jan. 12 data, world wheat, coarse grains and oilseed ending stocks were all projected to increase since their December 2009 projections. In response to positive market signals during the 2007/2008 and 2008/2009 marketing years, global wheat, coarse grain and oilseed supplies have increased from the historically low supplies and ending stocks levels existing at that time.    
USDA also estimated that world wheat supplies have increased 13.8 percent since the 2007/2008 marketing year, moving from 738 million metric tons in 2007/2008 to 840 mmt in 2009/2010.  Ending stocks projections for 2009/2010 of 195.6 mmt rose by 2.5 percent since the December 2009 World Agricultural Supply and Demand Estimates report, and are up 61 percent from the record low world wheat ending stocks of 2007/2008 (121 mmt).  World wheat stocks-to-use has increased from 19.6 percent in 2007/2008, to 25.6 percent in 2008/2009, to a projection of 30.4 percent in 2009/2010 - a 111-day supply of wheat for world markets.

"Finally," O´Brien says, "once the U.S. corn and soybean crops are planted, any serious potential weather threats to the U.S. feedgrain and oilseed crops would impact the grain markets. Supplies of both U.S. corn and soybeans are not as burdensome to domestic and global markets as for wheat, and the United States remains an important leading supplier of world feedgrain and oilseed exports. Bidding for U.S. crop acres between corn and soybeans, and potential weather threats would still be likely to support U.S. grain prices during 2010."

Source: Kansas State University