December 2014 corn futures closed Friday at about $3.72 per bushel and have been above $3.60 more than a month. That’s after they had tanked to $3.20 earlier this fall. Some contend the rally has been caused by harvest delays. But Darrel Good, University of Illinois ag economist, believes the rally is likely due to anticipation of fewer harvested acres.
Long-range corn price projections by many analysts put cash corn prices as low as $2.75, depending on the local basis. But when wet weather and early snows stalled combines, prices heated up. However, Good said the increase was likely more the result of the market’s anticipation that USDA’s National Agricultural Statistics Service (NASS) estimate of harvested acreage would ultimately decline.
“Planted acreage of corn reported to Farm Service Agency is less than the NASS acreage estimates, since not all producers participate in farm programs that require acreage reporting,” Good said in a U of IL Farmdoc report last week. “From 2007 through 2013, the final difference between the two acreage reports ranged from 2.381 million to 3.221 million acres and averaged 2.798 million acres.”
That’s a range of 96.7% to 97.5% of the NASS estimate, Good said, noting, “a delayed corn harvest doesn’t alter the crop size and should have impacted the basis not the price level.” He said he expected less acreage was confirmed in USDA’s October Crop Production report, and “the November FSA report suggests that further (acreage) declines are likely.”
Meanwhile, university economists have projected higher corn usage from livestock production, which may help hold prices higher. “Farmers have preferred to store much of this year's huge corn crop,” noted Bryce Knorr, senior editor of Farm Futures, sister publication of Corn+Soybean Digest. “That has prompted livestock feeders, exporters and processors to raise cash bids.”
Usage for ethanol production may be less clear with Friday’s move by the EPA to withdraw its proposal to reduce the ethanol mandate, stating it will delay making its final decision on the 2014 mandate until next year.
Like Good, Knorr indicates that the corn crop may be lower than expected. “The U.S. crop may not be as big as feared, but it's still big, and demand isn't growing quickly,” he said. “The best hope for prices is falling acreage in 2015.”