Grain merchandising is a never-ending series of challenges, and the 2012 crop has been that in spades. Drought-decimated corn and soybean crops left elevators with less grain to handle and with less revenue. Buyers and sellers alike have had to adapt to record high basis levels on corn and soybeans, tight holding by farmers and volatile futures spreads. At least wheat offered some reasonable revenue opportunities!
Even bigger challenges lie ahead. Sept. 1 combined stocks of corn, soybeans and wheat this year are projected to be around 1.45 billion (B) bushels, the lowest since 1997, and compares to 1.9B bushels in 2012. (This uses USDA’s 9/1 forecast carryout on corn and soybeans. Wheat stocks are estimated from USDA June 1 wheat carryover plus estimated production minus estimated June/July/Aug. disappearance.)
By late August 2013, the wind will be whistling through bins across the country. Around 88% of U.S. storage space will be empty, the pipeline of corn and soybeans will be nearly depleted, and imports from South America may be the story. Summer basis swings on corn and soybeans could be dramatic and violent, with atypical grain flows to redistribute supplies. The BNSF railroad, for example, has reduced rates for soft red wheat from the eastern Corn Belt to Texas feedlot areas and to the Pacific Northwest export terminals. But the lack of corn and soybeans can become bearish on the basis in some areas; there’s no reason to bid up if you can’t originate enough inventory to run your ethanol or soybean crush plant.
Some export facilities may sit nearly idle by late summer (except for wheat); U.S. soybean export shipments were already at a record 85% of the crop year projection by March 1 and total sales were at 95+% — with six months until harvest. Tight corn and soybean stocks mean exports can’t climb much, in any case, until 2013 crop hits the bins.
But a dramatic turnaround lies ahead and sharp grain traders will use idle time wisely this summer. In February, the USDA Economic Outlook forum in Washington, D.C. offered optimistic scenarios of soaring production and sharply higher ending stocks in 2014 on corn and soybeans, along with slightly lower wheat production and stocks.
- Corn: 96.5 million (M) planted acres @ 163.6 bushels/acre for a crop of 14.53B bushels. Ending stocks in 2014 at nearly 2.2B bushels
- Soybeans: 77.5M planted acres @ 44.5 bushels/acre for a crop of 3.405B bushels. Ending stocks projected at 250M bushels
- Wheat: 56M acres @ 45.2 bushels/acre for a crop of 2.1 billion bushels; 2014 ending stocks at 639M bushels, the lowest since 2007/08.
- Corn + soybean production: 17.94B bushels
At this point there’s no reason to doubt USDA’s general premise, although a repeat of last season’s heat and drought could change things quickly and dramatically. Here is an alternate Grain Service Corporation (GSC) scenario for ‘13 production:
- Corn: 98M acres @ 155 yield = 13.9B bushels (record)
- Sbns: 77M acres @ 43 bushels/acre = 3.3B bushels (near-record)
- Wheat: 56M acres, and 2.2B bushel production
USDA assumed corn acres down .7%, and soybean acres up .3%, largely based on the soybean/corn price ratio. But feedback from GSC clients and many other surveys point to higher corn acres this year; we used 98M for this scenario. Our yields assume a significant recovery from the drought, but are below USDA’s figures and below prior records. Our wheat scenario uses USDA’s acreage but a slightly higher total crop.
Even using GSC’s somewhat more conservative production scenario, inventories this fall could reach 20B bushels, despite the depleted Sept. 1 stocks, as potential record corn and soybean crops pour into elevators. This would be nearly 3B bushels higher than last year and close to the record 20.5B bushels set in the fall of ’09. USDA’s Outlook Forum projections on corn and soybean production are 740M bushels higher than used in Chart 1 and Table 1, which would only add to the challenges. (Note: All production and stocks figures exclude sorghum, oats, barley and other crops.)