“Turnaround Tuesday” did not reverse a corn market which was locked limit down with advantageous Cornbelt rains. But the “dead cat bounced” on Wednesday’s futures trading as near term rains and distant dryness tugged at traders emotions. Some elevator managers were advising farmers to back away from their $4 offers because heavy hedge fund selling would overcome all bullish opinion. If it is time to either adjust or execute your marketing plan, let’s take a look at some of the facts you need to know.

Four of the most prominent Cornbelt outlook specialists have weighed in this week on the issue of acreage and yield, all in an effort to project the size of the crop and get a head start on what price trends will be later in the summer and in the fall. You’ll get a summary of the weekly or monthly newsletters of Darrel Good at the University of Illinois,
Chris Hurt at Purdue University,
Bob Wisner at Iowa State,
and Matt Roberts at Ohio State University.
For more details, tables, and graphs, follow the links to their newsletters which are all worth reading if you have grain to market.

USDA’s June 29 Acreage Report provides a stepping stone for the extent of corn planting this year, particularly about acreage that is not traditionally in corn. Acreage was estimated at 92.888 million, up 14.561 million from 2006. 85.418 million acres are expected to be harvested. Ohio State’s Roberts believes that to be optimistic because droughty corn acreage in the southeastern US could be abandoned.

USDA’s trendline yield is 150.3 bushels per acre, and if that holds, production would reach 12.838 billion bushels. Darrel Good says, “Corn prices, and particularly the new crop basis, will remain weak into harvest if the final two months of the growing season point to an average yield above 150 bushels per acre. Basis and cash prices are expected to rebound after harvest in order to ensure large corn acreage in 2008. Based on conditions in mid-July, a 2007-08 marketing year average farm price of $3.30 is expected. At the close of trade on July 17, the futures market reflected a 2007-08 average farm price near $3.35.”

Both Good and Iowa State’s Bob Wisner said this year’s production, along with the ending stocks of more than 1 billion bushels should be adequate to meet 2008 consumption. But how is this year’s production really being measured? Good says USDA’s estimate is based on several factors, “Based on a continuation of that trend, the trend yield in 2007 is 148.7 bushels per acre. Using an econometric model fit over 1990-2006 using trend, July weather, and planting progress, the USDA calculates the likely yield for 2007 at 150.3 bushels per acre.” Good says there are some estimates of a higher yield that are based on an increased percentage of biotech hybrids and this year’s substantial use of fungicides. And he adds that a formula based on weekly crop condition ratings is currently projecting a 148 bushel crop.

At Purdue, Chris Hurt was estimating the average yield at 149 bushels, also based on current crop ratings, “The week of July 16th was setting up to be a critical one as crop conditions in Minnesota, Iowa, and Nebraska were going down rapidly, and the forecast was very hot and dry. However, as Mother Nature has the final say, that forecast turned to more abundant rainfall in some portions of the Midwest and somewhat cooler. Thus, staying with the USDA estimate of 150.3 bushels per acre is reasonable at this point.”

Since many private analysts have estimated yields anywhere from 147 to 160 bushels per acre, Ohio State’s Matt Roberts looked at four different calculations to develop a trend: 1) First, I performed a simple forecast using past US national yield data—the US National Yield Model. (154.081 bushels)
2) The second was the Adjusted US National Yield Model, an adjustment of the first model so that acres planted in 2007 in excess of the maximum number of acres planted between 1990 and 2006 had expected yield reduced by 5% to represent corn-on-corn yield lag and the effect of farmers, especially in the South, growing corn for the first time in many years. (153.159 bushels)
3) In the third model, Composite Yield, I forecast yields for each state based upon historical data, and using the June 30 plantings report, estimated a national yield from the state yields. (152.774 bushels)
4) Finally, the fourth model, Adjusted Composite Yield, is a state-by-state composite model adjusted for yield drag. (152.177 bushels)
Roberts says he’s satisfied that 151-153 bushels will be the national average, but knows that some are concerned about Eastern Cornbelt dryness and flooding in parts of IA & MO, “Every year there are poor weather conditions somewhere, but without devastating drought, I think it is unwise to make significant adjustments for corn until pollination has finished.”

Based on acreage, yield estimates for the new crop, and old crop carryover, supplies should be sufficient for the growing demand. But the demand dynamic affects the price more than it has in years past. So price prospects might be a bit more ethereal this year.
Iowa State’s Wisner calculates an average $3.05 futures price and $2.95 farm price for the marketing year, based on a 150 bushel average yield. Purdue’s Hurt believes cash prices will remain above $3 for harvest, “Given current prospects, corn prices at harvest are expected to be in the $3.00 to $3.20 area given December futures in a $3.40 to $3.60 range and basis levels of 35 to 45 under. By January these bids are expected to be closer to $3.30 to $3.60. Thus gross returns for storage are expected to be 30 to 40 cents per bushel to the first of the year.”

Roberts at Ohio State agrees with the $3 bid range, but says farmers will have to closely watch the basis because of storage issues, “There will likely be large storage pressure this fall, resulting in harvest basis bids of 40c-60c under. If you can lock in 35c or 30c, or even better, I would suggest entering into those contracts. Further, make sure that you are aware of your insurance situation. If you purchased RA or CRC, you may be nearing the level where the price change alone will trigger payments. If that is the case, I would look to cover any short futures positions in the $3.10-$3.25 region, basis December 2007 CBOT.” Roberts also says farmers should be ready to book 2008 bids, “In 2008, there will need to be plantings of at least 93m acres, and preferably 94m, and CBOT prices of $3.50 will not ensure sufficient acreage. So expect Dec ’08 futures to remain above $3.75 until harvest, and then to start moving above $4 once attention turns to 2008 plantings.”

At Illinois, Darrel Good says buckle your seat belt because corn prices should be volatile, and at higher levels than in past years. But with large supplies following harvest, he says the basis will be wide, and smart marketing will depend upon watching the basis, “For those with on-farm storage, the combination of weak new crop basis and large carry in the futures market suggests that pricing for delivery late in 2007-08 marketing year offers the opportunity for very good storage returns. On July 17 2007, for example, the harvest bid in central Illinois was $.76 under July 2008 futures. If the basis improves to a typical level of $.15 under July by June of 2006, the market is offering a storage return of $.61 per bushel. At 8 percent interest, the cost of holding $3.00 corn for 8 months is only $.16.”

Summary:
If 85 million acres are harvested as USDA estimates, the yield is the only issue unsettled before knowing if we’ll have enough corn to meet the 2008 demand. While private analysts have estimated a wide range of yields, Land Grant Outlook Specialists have focused on the 149 to 152 area for projected yield. Based on demand they believe harvest prices will remain above the $3 range, but with the large supply there will be wide variations in the basis as well as considerable price volatility.