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Agriculture Today

Drought hampers overall U.S. production as tight supplies continue

Drought hampers overall U.S. production as tight supplies continue

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Wilson County News
October 10, 2012
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As farmers and ranchers contend with the worst drought in 50 years, all eyes are on actual harvest numbers. Now, a second U.S. Department of Agriculture (USDA) National Agricultural Statistics Service grain stock report has again prompted an increase in corn prices, due to the findings published. All this, while feedlot operators, ethanol producers, and the export markets are all watching closely as small grain prices rise to historic levels. The concern is that the typical decline in grain prices in October and November may not occur, due to the findings of these reports.

Production drops

The USDA’s Sept. 12 report shows corn production numbers continuing to slide, with the lowest production in the United States since 2006. The projected 122.8 bushels per acre is well below the 2011 average of 147.2. See “Production snapshot” for comparison.

While U.S. farmers planted an additional 3.38 million acres in corn in 2012, the total estimated production of 10.7 billion bushels is down by more than 1.6 billion bushels, compared to last year’s crop. See “Acreage, production” for more.

The crop now coming into the market has less No. 1 corn than anticipated. According to the USDA report, in the 18 major producing states, “52 percent of the acreage was rated in very poor to poor condition compared to only 21 percent rated in these two categories last year at this time.”

The same can be found with grain sorghum as U.S. farmers also planted an additional 1.169 million acres, totaling more than 5 million acres. The grain sorghum crop was also affected by the 2012 drought, with production down 6.3 bushels per acre.

U.S. farmers also planted almost 1 million additional acres in soybeans, totaling 74.6 million acres. Once again, the 2012 drought has taken its toll, with total production down more than 421 million bushels from 2011 numbers. Estimated yield took a dive from last year’s 41.5 bushels per acre to 35.3 bushels, according to the September report, which stated the harvest realized this year will be the fourth-largest on record.

Grain stocks

Only two weeks later, the USDA released its Grain Stocks report on Sept. 28. To determine the supply available, the government also reports on the availability of carryover crop from prior years. The storage number includes grain stored on the farm and at mills, elevators, warehouses, terminals, and processors.

For example, corn in storage totaled 988 million bushels, down 12 percent from September 2011. Grain sorghum and soybeans in storage are down 16 percent and 21 percent, respectively.

Of the three small grains reported, the carryover from 2011 is down by more than 162.5 million bushels.

For totals, see “Storage.”

Supply, demand

What does all this mean?

In a Sept. 28 webcast, Telvent DTN senior analyst Darin Newsom spoke of the corn and soybean supply.

Newsom said the market was caught off guard as the corn prices exploded by 30 cents per bushel when the report was made public Sept. 28.

He emphasized that all economists knew corn is in tight supply and the market had cooled with the updated September USDA report, but the September grain stocks report “lit that fire again,” he said.

If the October crop production report comes in between 122-123 bushels per acre on 87.4 million acres, production could be more than 11 billion bushels. The fourth-quarter corn supply will be the lowest since 1995.

The food vs. fuel debate with the use of corn in ethanol production will again heat up, Newsom said, due to the tight supplies.

To help alleviate the pressure, the United States has imported Brazilian corn.

Cattle industry

Newsom said the stress will be on the cattle industry, when considering feed conversion rations. Herd liquidation will continue unless feed prices stabilize.

The next four to eight months will be a tough time for the producers, Newsom concluded. He described the U.S. corn yield in the Corn Belt as “rotten.”

In the USDA report, another factor cattlemen are contending with is pastures.

According to the report, cattlemen in the Plains and Midwestern states are affected by the drought-like conditions, with “more than 40 percent of rangeland and pastures ... rated very poor to poor” versus Gulf and Atlantic Coast states reporting good to excellent in at least 50 percent of this area.

With all the above contributing factors, drought and high feed costs, and no new Farm Bill approved by Congress, the ag sector -- especially cattlemen, will continue to tighten their financial belts and liquidate as needed to survive.


*September 2011
Corn: 1.1 billion bu.
Sorghum: 27.4 million bu.
Soybeans: 215 million bu.
*September 2012
Corn: 988.4 million bu.
Sorghum: 22.9 million bu.
Soybeans: 169.4 million bu.

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