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Get Set For $8 Corn, $15 Beans As Supplies Stay Tight

Get Set For $8 Corn, $15 Beans As Supplies Stay Tight

Yesterday USDA issued final numbers for 2010 crops. Harvest was smaller than previously estimated, sending grain prices to the highest levels in two years and raising fears of crop shortages and higher food prices.

USDA released its final official estimates for 2010 crop production on Jan. 12, 2011 and the numbers stunned the commodity markets, sending corn and soybean prices to their highest levels in two years. The lower crop size and tight grain supplies are raising fears about crop shortages and higher food prices.

The report shows corn production was 5% lower than the 2009 harvest in the U.S., and stocks of corn in elevators and on-farm storage bins at the end of 2010 were lower than a year earlier. Soybean production in 2010 was down 1% from 2009 and soybean stocks at the end of 2010 were also lower. As a result, corn for March delivery reached a two-year high of $6.31 per bushel on the Chicago Board of Trade yesterday and soybeans soared to $14.09 per bushel.

Live cattle rose to $110.20 per hundredweight for March delivery, and feeder cattle climbed to $126.45, an all-time record. Hogs for February delivery rose to $81.12 per hundredweight. Traders marveled at the rare occurrence of grain and livestock prices running parallel rather than in opposite directions.

Prices will stay on hair-trigger, as grain supplies remain tight

Some market analysts expect corn prices this year to eventually push toward the record $7.99 per bushel that was achieved briefly in mid-2008. Prices that year fell back quickly, but not before wreaking financial hardship on livestock feeders and ethanol producers. Some economists say soybean prices could make a run at $15 per bushel or higher this marketing year.

The new USDA report showing a smaller U.S. corn and soybean crop for 2010 than was previously predicted is very important to Iowa, which leads the nation in corn, soybean and hog production and is the fifth-largest cattle feeding state.

The cash value on paper of Iowa's corn and soybean crops was about $13 billion last June when corn sold for $3.50 and soybeans for $9 a bushel. The value of those two crops has since jumped to $21 billion. Hog and cattle producers annually gain $6 billion to $8 billion in cash receipts from sales of livestock and enjoyed their first profitable year in 2010 after three consecutive years of losses. But meat may become more expensive in 2011, as it costs more to feed higher priced corn and soybean meal. "The price of pork is going to have to go up. Consumers will feel that at the grocery store," says Sam Carney, an Iowa hog farmer from Adair who is president of the National Pork Producers Council.

In 2010 the U.S. harvested its third largest corn crop ever

The high grain and livestock prices may be welcome for Iowa farmers and the state's economy, but farmers have learned over the years that high prices can bring special problems. A brief surge in corn prices above $7 per bushel in 2008 stimulated the "food vs. fuel" debate that continues to dog the ethanol industry.

Despite less than ideal planting conditions and a very challenging growing season in 2010, corn growers in the U.S. still harvested the third largest crop on record, points out Craig Floss, chief executive of the Iowa Corn Growers Association. He cites the numbers from the newly released USDA 2010 crop production summary report.

For the year 2010, U.S. corn production totaled 12.4 billion bushels, down 5% from the record corn crop of 13.1 billion bushels in 2009. Corn yield in 2010 is estimated at 152.8 bushels per acre, down 11.9 bushels from the record high U.S. yield of 164.7 bushels per acre set in 2009. Area harvested for grain is estimated at 81.4 million acres for 2010, up 2% from 2009.

"Corn growers are resilient and have an amazing ability to overcome weather challenges, and we ended up producing the third largest corn crop on record in 2010," says Kevin Rempp, a farmer from Montezuma and treasurer of ICGA. "Even though this 2010 corn crop is below the previous year's, corn farmers across the U.S. continue to produce more with less. In the past 10 years, U.S. corn production has risen 20% while using 37% less land, according to USDA."

Projections show a 17 billion bushel U.S. corn crop by 2020

In Iowa, the 2010 growing season was marked by too much moisture in many areas and a wide range of temperatures. In spite of flooding and other problems, Iowa corn farmers were able to produce 2.153 billion bushels with an average yield of 165 bushels per acre. Iowa averaged 182 bushels per acre in 2009.

"Every year Iowa has the potential to produce more corn than any other area in the world," says Rempp. "However, because corn production is dependent on weather, the reduction in numbers for Iowa is not entirely unexpected."

Corn farmers are already finalizing plans for the 2011 planting season with the potential for more corn acres to be planted. "With new seed technology farmers will continue to meet the needs for food, feed, fuel and fiber across the world," he adds. "According to trend-line projections, by 2020, U.S. corn farmers are expected to harvest at least 17 billion bushels, and this will go a long way in meeting the needs of a growing world population."

U.S. soybean production in 2010 was second largest crop ever

What about soybeans? Soybean production in 2010 for the U.S. was down 1% from 2009, but the 2010 harvest is still the second largest on record. According to USDA's final estimates, farmers nationwide harvested 3.33 billion bushels of soybeans this past fall. The average yield for the U.S. is estimated at 43.5 bushels per acre for 2010, which is only half a bushel below the previous year's record high yield. The number of harvested acres in 2010 was up slightly from 2009 to a record high of 76.6 million acres.

For Iowa, soybean production is estimated at 496 million bushels. Iowa's soybean yield in 2010 averaged 51 bushels per acre, the same as 2009.

In the World Supply and Demand Estimates report also issued Jan. 12, 2011, USDA lowered its estimate of U.S. corn and soybean stocks that will be left at the end of the current marketing year. USDA now projects corn ending stocks at 745 million bushels at the end of Aug. 2011. That's down from the previous estimate released last month, which was 832 million bushels for the carryout on Aug. 31, 2011. Soybean stocks for the U.S. at the end of the current marketing year are pegged at 140 million bushels, down from USDA's previous estimate of 165 million bushels.

Keep an eye on China's demand, and on weather in South America

Iowa Soybean Association director of market development, Grant Kimberley, comments on the Jan. 12 report: "It looks like the average U.S. soybean yield for 2010 is down slightly from the November USDA estimate and from 2009, but it is still historically large. The main reason for these higher crop prices we are seeing now is strong worldwide demand for feedgrains and oilseeds as the rest of the world adds more meat in their diets."

Kimberley adds, "We need to keep an eye on China because they will continue to be a key driver of soybean demand. We'll need to increase acres in the U.S. in 2011, planted to both corn and soybeans, and that should create opportunities for farmers. Another thing to keep an eye on is weather conditions in South America, especially Argentina, which remains drier than normal."

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