Category: Crop Marketing

The USDA is currently forecasting a record national average corn yield of 183.1 bushels per acre for 2024 (Figure 1). Record yield and flat demand have contributed to projected ending stocks of over 2 billion bushels, pushing December corn futures contract prices from $4.80/bu in May to a low of $3.85/bu at the end of August. Additionally, record yields across many regions will provide a weaker than typical basis for many corn producers. USDA will continue to modify yield estimates as additional harvest data are collected this fall and winter. The USDA’s final yield estimate will be provided in January 2025. This article examines national corn yields and changes in percent yield deviation from a trendline over time.

Figure 1. U.S. corn average yield, linear trendline yield, and percent deviation from trendline, 1945-2024

Since 1945, U.S. national average corn yield has increased an average of 1.9 bushels per acre per year, or 19 bushels every 10 years. Drought is typically responsible for substantial negative deviations from the trendline (-25% in 1988 and -22.5% in 2012; Figure 1). Severe widespread droughts will continue to negatively impact national average corn yields in the future, presenting as large deviations from a long term trendline. However, there are patterns that emerge in the yield deviation from trendline data. There is a tendency to have multiple years of deviation above trend (2003-2009 and 2014-2018) or below trend (1995-1997 and 2010-2013). The number of years differs, and can contain a contradictory year, but there is a pattern. This is not to say that the current yield indicates that for the next few years yields will be above trendline. The second is there is a smaller percent deviation (positive or negative) from trendline in recent decades. From 1965-1994, U.S. corn yields deviated (+ or -) from trendline by more than 10% in 11 years and by more than 7.5% in 20 out of 30 years (Table 1). By contrast, from 1995-2024, yields deviated by greater than 7.5% in only 3 years. The average percent deviation from trendline from 1995-2024 was 3.7% compared to 9.4% from 1965-1994. Thus, with the exception of a few extreme years, yield in the past 30 years has been following a long term trendline. National average yield impacts the prices producers receive. Understanding long term national, state, and regional yield trends and patterns can assist in formulating a risk management and marketing strategy. 

Table 1. The number of years from 1965-1994 and 1995-2024 with national corn yields 10%, 7.5%, 5%, or 2.5% higher or lower than the linear trendline

References

USDA NASS National Corn Yield Data. NASS Quick Stats. https://www.nass.usda.gov/Quick_Stats/

USDA August WASDE Report. https://www.usda.gov/oce/commodity/wasde

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Smith, Aaron. “National Corn Yields and Deviation from Trendline Over Time.” Southern Ag Today 4(37.1). September 9, 2024. Permalink

USDA’s June Grain Stocks report estimated 37% more corn and 44% more soybeans stored on-farm than last year (Maples, 2024). Many producers are still sitting on unpriced old crop corn trying to decide whether to sell or hold through harvest hoping for prices to improve. This article discusses three potential options for a farmer deciding what to do with old crop held in storage. The three options – using 100,000 bushels of corn and a current cash price of $4.00 – examined are:

1. sell corn at the current market price;
2. continue to store corn with operating loan utilization; or
3. store corn with cash resources.

Selling corn at the market price is the most straightforward option. Selling would result in collecting $400,000 that could be used in other areas of the operation – including paying down opertating debt or covering expenses – or it could be invested. Additionally, making sales would free up storage for the new crop and shift the focus to marketing the 2024 crop.

If an operating loan with a 9% interest rate is being used, continuing to store corn until February would incurr interest expense of $21,000 ($400,000 × 9% × 7/12). Dividing by 100,000 bushels, the per-bushel interest expense would be $0.21 or $0.03 per bushel per month, meaning cash prices from now until February would need to increase to at least $4.21 for the farmer to be better off than selling at today’s prices. 

If the farmer is using cash reserves, rather than an operating loan, to carry corn until February, forgone interest should be estimated. Current certificate of deposit (CD) rates for short term money are close to 4.5%. Utilizing $400,000 cash has a forgone return on investment interest of  $10,500 ($400,000 × 4.5% × 7/12) or $0.11/bu ($0.015 per bu per month). 

When deciding to continue to store corn or sell, several factors need to be considered. Calculating the interest expense or forgone interest is one factor. There is uncertainty in price direction; however, based on current projections it is likely that both futures prices and basis will remain low as harvest proceeds. It is worth noting that this analysis only considers interest expenses. It does not include other other storage costs or risks, such as quality losses, grain handling, and capital recovery for storage infastructure. Additionally, prices may not increase by February, and all storage could result in a loss. 

References

Maples, William E. “Having a Way Out.” Southern Ag Today 4(30.1). July 22, 2024. Permalink

Gardner, Grant. “Interest Rates and Grain Storage.” Southern Ag Today 3(26.1). June 26, 2023. Permalink

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Gardner, Grant. “To Store or Not to Store? Old Crop Exit Strategies.” Southern Ag Today 4(35.1). August 26, 2024. Permalink

The August 2024 World Agricultural Supply and Demand Estimates (WASDE) report included indicators of record yields and production, lower average prices, and some mixed market signals in the week that followed the release.  On August 12, the USDA released the WASDE report projecting a record corn yield of 183.1 bushels per acre.  The increased corn yield more than offsets a reduction in harvested acres, resulting in a forecast of 15.15 billion bushels.  If realized, total U.S. corn production would be the third-largest corn crop on record, roughly 200 million bushels behind the 15.34 billion bushel record crop of 2023.  With increased exports, ending stocks are expected to fall slightly to 2.1 million bushels.

The USDA also reported a record soybean yield of 53.2 bushels per acre, and forecasted record production of 4.59 billion bushels.  Even with a small increase in projected exports, ending stocks are projected to increase significantly to 560 million bushels.  As a result of these projections, the average farm price for 2024/25 is projected to be $4.20/bu for corn (down 10 cents/bu from the month prior) and $10.80/bu for soybeans (down 30 cents/bu from the month prior).  

For cotton, acreage and production estimates were both lowered.  Yields are projected at 840 pounds per acre, while planted acres are down about 500 thousand acres.  Combined with an expected increase in the abandonment rate from the prior month, production estimates are expected to be 15.11 million bales.  Total use also is projected to decline with decreases in both domestic use and exports, resulting in a 4.5 million bale ending stock.  Even with lower ending stocks, the average farm price for 2024/25 is projected to be 66 cents/lb (down 2 cents/lb from the month prior).  

Long-grain rice production is expected to decline only slightly to 167.2 million hundredweight, with ending stocks following suit, down to 23.2 million hundredweight. The average farm price remained steady at $14.50/cwt.

The week that followed this report was filled with ups and downs, but overall indications of a low-price environment this fall and winter.  Table 1 illustrates the last futures market trade price for November/December contracts for corn, soybeans, cotton, and rough rice for each day since August 9, the day before the WASDE release.  On August 12, the day of the release, the corn contract increased 6.5 cents from the prior day, with an attempt to stay at the $4/bu mark that didn’t make it through Friday.  The November soybean futures price saw a 16.5 cent drop from the prior day and continued to fall thereafter, down to $9.57 by the end of day Friday, marking a one-week drop of 45.4 cents/bu.  Meanwhile, cotton appeared to make an attempt at the 70 cent/lb mark after the WASDE release, but ultimately has continued the fall to near 67.24 cents/lb by the end of the week.  Rough rice initially dropped 28.5 cents from the prior day, but did rebound to above $15/cwt before pulling back again to close out the week at $14.725/cwt.  The reaction to the August WASDE report indicates a continued downward trend in futures prices, with a high likelihood that prices remain depressed through harvest. The 2024/25 marketing year is setting up to be a challenging year for profitability for most farmers. Producers need to ensure they are obtaining the most out of their  marketing plans under these challenging circumstances.  

Table 1. Futures Market Prices around the August WASDE Report for Nov/Dec Contract Dates for Select Commodities

References:

USDA World Agricultural Supply and Demand Estimates, August 12, 2024.  Available at: https://www.usda.gov/oce/commodity/wasde/wasde0824.pdf

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Rabinowitz, Adam. “The Week that Followed the August WASDE Report.” Southern Ag Today 4(34.1). August 19, 2024. Permalink

Storage is an important marketing and risk management tool that allows producers to extend the marketing interval and avoid seasonal low prices at harvest. As harvest rapidly approaches, producers will need to determine the amount of production that can be stored on-farm or in commercial storage and which commodities to store if limited space is available. Looking at current futures market price spreads provides an indication of whether the futures market is incentivizing storing corn or soybeans (Table 1 and 2). To compare the benefit of storage between commodities, we can look at the spread between the nearby and deferred futures contracts and the interest cost associated with carrying the commodity for sale at a later date. In this analysis, the interest rate is assumed to be 8.0%. This results in a monthly interest cost of $0.026/bu ($3.83/bu x 8% x 1/12 months) for corn and $0.067/bu/month ($10.08/bu x 8% x 1/12 months) for soybeans. 

Comparing the May futures contract and interest cost for corn and soybeans indicates a benefit to storing corn over soybeans. The futures market spread between the September and May corn contract is $0.46/bu ($4.29/bu – $3.83/bu). The interest cost is $0.20/bu ($0.026/bu/month x 8 months). The spread less interest is $0.26/bu.  For soybeans, the September and May spread is $0.54/bu ($10.62/bu – $10.08/bu) with an interest cost of $0.54/bu ($0.067/bu/month x 8 months). This results in a soybean spread less interest of $0.00/bu. Examining other deferred contract months provides a similar result. Thus, the futures market is indicating a stronger incentive to store corn than soybeans. It is important to note that this analysis does not include changes in basis, which will vary by location and could change the storage preference between commodities.

References

Barchart.com. December Corn and Soybean Futures Prices. Accessed August 7, 2024 at: https://www.barchart.com/futures/grains?viewName=main. 

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Smith, Aaron. “Storing corn or soybeans: what is the futures market incentivizing?” Southern Ag Today 4(33.1). August 12, 2024. Permalink