The August crop report, released on Friday, did not have very good news; but most analysts feel that, at least this time, the government got it right. The 13% drop in corn production and 12% decline in expected soybean production was close to what the market had expected and actually worse than what Purdue Ag Economist Dr. Chris Hurt expected. But, unlike recent USDA crop estimates, this time Hurt said the USDA got it right, “I think this time the USDA got the number low enough to be realistic.” In the past, the USDA August report has been a number that gets revised several times in subsequent monthly updates. Traditionally, big crop estimates get revised higher and lower crop estimates get revised down. Hurt says this year the small August number may actually get larger in the September report, “I think it is possible the soybean number will be revised higher based on the rains we are seeing in August.”
Shaun Casteel, Purdue soybean specialist, agrees that recent rains could boost soybean yields, “I think we could see yields increase about 3 bpa in some fields.” Even Purdue corn expert Bob Nielsen says corn yields could improve in some fields, “There are some fields that are still in grain fill, so these rains could provide some improvement.” But he refused to speculate on how much of an improvement.
However, a slight increase in production will not impact prices very much. Hurt believes that record high prices are not likely to slow demand very much. As a result, he sees corn prices topping $9, “I do not think we have seen the high yet.” The high may be set by what world demand for corn turns out to be. Hurt believes export demand and ethanol use will not decline very much. This is one area where Hurt believes the USDA numbers are wrong. In the Friday report, the USDA forecast a 16% drop in export sales, but Hurt is forecasting only a 7% decline. Ethanol use of corn was forecast to decline by 10%, but Hurt told HAT as long as ethanol remains cheaper than gasoline there is no incentive for blenders to cut back on ethanol use.
Hurt said the biggest area of reduction in corn use due to the high price will be the livestock sector. Cattle and hog liquidation is already taking place, and Hurt estimates that corn for feed use could decline by as much as 18%.