July 12, 2011

 

US corn recovers on continued demand despite yield concerns

 

 

US corn prices have made a modest recovery following the sharp declines stemming from the US Department of Agriculture (USDA) reports released on June 30.

 

"The recovery has reflected a combination of continued strong corn demand and a few concerns about yield potential," said University of Illinois agricultural economist Darrel Good.

 

Good said that July 2011 corn futures reached a high just below US$8.00 on June 10 and fell to a low of US$6.15 on June 30. The price of that contract moved about US$0.55 higher in the first week of July. 

 

Similarly, December 2011 futures reached a high near US$7.23 on June 9, declined to US$5.75 on July 1, and then moved about US$0.60 higher by the close on July 8.

 

Based on weekly estimates of ethanol production, ethanol production in June 2011 was 4.7% larger than in June 2010.

 

"To reach the level of production for the 2010-11 marketing year implied by the USDA's projection of five billion bushels of corn used for ethanol and by-product production, ethanol production in July and August needs to be only 0.3% larger than production of a year ago," Good said.

 

Although there is some threat that the tax credit for blending ethanol could be eliminated at the end of July, current blending economics suggests that ethanol production would not be immediately reduced in the absence of the tax credit.

 

"There is some ongoing disagreement above the amount of corn used for ethanol production," said Good. "For the 2009-10 marketing year, USDA estimates of corn use imply a conversion rate of 2.74 gallons (10.37 litres) of ethanol per bushel of corn. Trade associations indicate that the correct conversion rate is 2.8 gallons (10.6 litres) per bushel and suggest that less corn has been used for ethanol production than implied by the USDA."

 

The USDA's Feed Outlook report to be released on July 14 will contain an estimate of corn used for ethanol production during the third quarter of the 2010-11 marketing year, which will indicate if any change has been made in the estimate of the conversion rate.

 

Corn export prospects, particularly for the 2011-12 marketing year, have improved with recent purchases by China. For the current year, the USDA reported that China had imported about 22 million bushels of US corn as of June 30. No outstanding sales to China were reported as of that date.

 

However, unshipped sales of 103.5 million bushels to unknown destinations may have included some sales to China. On July 7, the USDA announced sales of 21 million bushels of corn to China for delivery during the 2011-12 marketing year. In addition, announcements on July 1 and July 7 reported sales to unknown destinations totalling 14 million bushels for the current marketing year and 42.5 million bushels for the 2011-12 marketing year, some of which may have been to China.

 

Corn production prospects were boosted by the USDA's June Acreage report that projected the harvest area for grain at 84.888 million acres, 3.44 million more than in 2010. Using the calculation of expected yield of 158.7 bushels in the USDA's June 9 WASDE report, the acreage forecast points to a record 2011 U.S. corn crop of 13.472 billion bushels, 1.025 billion larger than the 2010 crop.

 

In addition to late planting and extreme weather in some areas, corn yield concerns increased with dryness that developed in late June and early July in parts of Illinois, Indiana, Iowa, Ohio and Wisconsin.

 

"Widespread high temperatures in the first half of July remain an issue," Good said. "Crop condition ratings remain generally high. As of July 3, 69% of the crop in the 18 largest corn-producing states was rated in good or excellent condition in the USDA's weekly Crop Progress report."