Corn and soybeans rose 23 cents and 30 cents per bushel respectively in the first hour of trading on the opening at the Chicago Board of Trade Thursday after the U.S. Department of Agriculture Thursday stroked the concerns of the grain markets by lowering its projected national corn yield from 158.7 bushels per acre to 153 bushels per acre.
The USDA predicted continued of corn prices of $7 per bushel or higher. Corn now stands at $7.08 per bushel for the September contract and $7.18 for December.
The USDA cut the projected yield to 41.4 bushels per acre nationally, down from 43 bushels per acre last year.
The USDA’s projected corn production figure, reflecting poor April planting conditions and more recently hot weather during pollination in Iowa and Illinois, would be slightly above the 152 bushels per acre corn yield last year but down from 164 bushels produced by farmers nationally in 2009.
Iowa’s yield is pegged at 177 bushels per acre, up from 165 bushels per acre last year but down from the record 182 bushels per acre in 2009.
Iowa’s total corn production, the USDA said, will rise from 2.15 billion bushels last year to 2.43 billion this year.
Despite the prospect of continued high feed costs, livestock prices were strong Thursday. Slaughter-ready cattle opened up $1.32 per hundredweight to $117.45 on the futures market and hogs were up $1.07 per hundredweight to $87.10.
Iowa is the nation’s largest corn, soybean and hog producer and the fifth largest cattle feeding state.
Economist Chad Hart of Iowa State University said the impact on Iowa’s economy would be generally positive, since farmers can expect cash receipts roughly double what they received a year ago on what will be a larger corn crop.
“We’re seeing Iowa with better yields, and at higher prices,” said Hart. He noted that several other states, most notably Wisconsin, Ohio, Indiana, Texas, Kansas, Colorado and Mississippi will suffer yield losses this year on their corn crops.
The 2010 corn crop yielded about $8-$9 billion in cash to Iowa farmers. The 2011 crop, at current prices, will generate cash in the $15-$17 billion range.
Soybean receipts to Iowa farmers will increase from about $4.5 billion in 2010 to $6.1 billion this year at current prices.
Hart said the yield and price projections would continue the boom in Iowa farm land prices, which have increased by 25 percent in the last year and stand now at $5,770 per acre.
The stock of Iowa’s largest manufacturing employer, Deere & Co., was up $4 per share to $72.22 in morning trading on the New York Stock Exchange. DuPont, owner of Pioneer Hi-Bred of Johnston, was up $1.56 per share to $45.98. Monsanto, owner of the DeKalb and Asgrow seed lines, rose $3.25 per shae to $69.06.
The red flag caution for Iowa agriculture, Hart said, would be on the demand side.
“If the high prices and economic downturn cause a big slide in demand for corn, then the situation could change,” Hart said.
Commodity trader Sal Gilbertie of Teucrium Trading in Brattleboro, Vt., agreed, saying “we don’t know what price for corn is too high. But at some point $7 corn will deflate demand.”
Despite what will be the third largest corn harvest in history, the projected 2011 yields and production are likely to be a disappointment to end users such as livestock feeders and ethanol producers, who have counted an production of at last 13 billion bushels of corn this year to ease corn surpluses that are at 15-year lows.
“This means we’ll need extreme rationing in prices for corn in coming months,” said Des Moines commodity trader Don Roose of US Commodities, referring to expected high prices of corn through 2012.
Bryce Knorr of Farm Futures Magazine noted that tight corn supplies are expected into next year.
“While old crop stocks were pegged higher, to 940 million, the lower production estimate trims new crop carryout to 714 million, down 156 million. And the government’s forecast would take substantial rationing to achieve,” Knorr said.
The USDA increased its trading range for corn from $5.50 – $6.50 to $6.20 to $7.20 for the coming year.
The USDA made no reference to flooding problems, but said planting had been delayed throughout most of the Corn Belt by erratic weather in April, and that development of the crop has been hurt by hot, dry weather that occurred exactly during pollination during the last two weeks of July.
Corn prefers temperatures in the upper 80s during pollination. Instead, Iowa was hit with a heat wave in late July that took average high temperatures close to 100 degrees, with below-average rainfall.
“Extremely dry conditions and above normal temperatures in the central and southern Plains caused severe stress to both irrigated and non-irrigated corn acreage,” The USDA said.
Farmer Terry Jones of Marengo, who is also a commodities advisor, said the USDA’s yield estimates could be too high.
“There’s a lot of problems in the corn crop caused by the hot weather on pollination,” Jones said. “You can’t see it from the road, but it’s in the fields. The ears haven’t filled out the way we like. This isn’t a disaster crop, but it’s not perfect.”
Jones said that much of northern Iowa’s cornfields are dealing with wilting issues left over from what was one of the hottest July heat waves on record.
Most ominously for livestock feeders who might want to switch to wheat instead of expensive corn as a feed, the USDA predicted a drop in wheat production, due largely to the severe drought that has hit the wheat belt in Texas and Kansas.
“All wheat production, at 2.08 billion bushels, is down 1 percent from the July forecast and down 6 percent from 2010,” the USDA said. “Based on August 1 conditions, the United States yield is forecast at 45.2 bushels per acre, up 0.6 bushel from last month but down 1.2 bushels from last year.”
Roose predicted a sharp jump in corn prices when the Chicago Board of Trade begins floor outcry trading at 9:30 a.m.
Roose said that because the USDA increased the available supply of last year’s corn still left in bins and elevators from 880 million bushels to 940 million bushels that supplies of corn would be adequate – barely – for end users through late September when the new crop start coming out of the fields.
“The problem is going to be forward into next year,” Roose said. “We could scrape by with a yield of 156 or 157 bushels per acre, but 153 bushels is just too small,” Roose said.
He noted that the USDA said corn exports likely will be 150 million bushels below previous expectations.
“That has to come from higher prices,” Roose said of the projected drop in exports.
Because of greater number of acres planted for corn, total corn production is predicted at 12.9 billion bushels, up from 12.4 billion bushels last year.
Soybean yields are predicted at 41.4 bushels per acre nationally and 52 bushels per acre in Iowa, virtually identical to last year. Because of acres shifted from corn to soybean production, total soybean production will drop nationally from 3.3 billion bushels last year to 3.1 billion bushels in 2011.
Iowa’s soybean production will drop from 496.2 million last year to 473 million for the upcoming harvest, the USDA said.