1. Grains Outlook for 2011 Insuring Iowa’s Agriculture Ames, Iowa
Nov. 9, 2010
Chad Hart
Assistant Professor/Grain Markets Specialist 1 1

2. U.S. Corn Supply and Use 2007 2008 2009 2010 Area Planted (mil. acres)
93.5
86.0
86.5
88.2
Yield
(bu./acre)
150.7
153.9
164.7
154.3
Production
(mil. bu.)
13,038
12,092
13,110
12,540
Beg. Stocks
1,304
1,624
1,673
1,708
Imports 20 14 8 10
Total Supply
14,362
13,729
14,792
14,257
Feed & Residual
5,913
5,182
5,159
5,300
Ethanol
3,049
3,709
4,568
4,800
Food, Seed, & Other
1,338
1,316
1,370
1,380
Exports
2,437
1,849
1,987
1,950
Total Use
12,737
12,056
13,084
13,430
Ending Stocks
827
Season-Average Price
($/bu.)
4.20
4.06
3.55
5.20
The arrows show the changes from last month. The October numbers from USDA showed the yields many traders had been talking about, but it still shocked the market. But even with national yields down to bushels per acre, we’re still looking at the 3rd largest corn crop ever. But it’s relatively short due to the strong demand for corn. Feed demand is projected to jump in the 1st quarter of the 2010 marketing year as old crop corn is blended and fed out. Ethanol demand is projected to continue to exceed the Renewable Fuels Standard. And export demand is expected to grow slightly. That’s enough to push stocks-to-use to 6.7%, the lowest level since And push prices higher with USDA at the $5 level for an average 2010/11 price.
Source: USDA 2 2

3. Yields are off throughout the Corn Belt, with the exception of Wisconsin. There are some record yields across northern corn producing regions. Over the past two months, USDA has lowered its yield estimate by 9.2 bushels.
Source: USDA-NASS

4. Translates to a yield in the 170-175 bu. range
Translates to a yield around 160 bu.
In those plots, USDA found fewer ears per acre and lighter weights per ear. The shifts in these variables result in roughly a 13 bushel per acre adjustment.
Source: USDA-NASS

5. U.S. Soybean Supply and Use
2007
2008
2009
2010
Area Planted
(mil. acres)
64.7
75.7
77.5
77.7
Yield
(bu./acre)
41.7
39.7
44.0
43.9
Production
(mil. bu.)
2,677
2,967
3,359
3,375
Beg. Stocks
574
205
138
151
Imports 10 13 15
Total Supply
3,261
3,185
3,512
3,536
Crush
1,803
1,662
1,752
1,665
Seed & Residual 93
106
108
117
Exports
1,159
1,279
1,501
1,570
Total Use
3,056
3,047
3,361
3,351
Ending Stocks
185
Season-Average Price
($/bu.)
10.10
9.97
9.59
11.45
For soybeans, the October USDA reports didn’t have any major shocks. We’re still looking at record soybean area, yields, and production. Demand looks to be on the upswing as well. Soybean export demand remains at record pace. Stocks are building back up, but are still below average levels. Prices are up as well, with USDA at $10.75 per bushel for the 2010/11 marketing year.
Source: USDA 5 5

6. There are record yields for several states and the nation
There are record yields for several states and the nation. While sudden death syndrome took a bite out of individual farm yields (especially in Iowa), it had little impact on the national picture.
Source: USDA-NASS 6 6

7. Within a bushel of each other
As USDA examines soybean plots over the past two months, the data shifted but the results are the same. Yields are around 44 bushels per acre.
Source: USDA-NASS 7 7

8. World Corn Production
Source: USDA 8 8

9. World Soybean Production
World soybean production is down, based mainly on a drop in South American production.
Source: USDA 9 9

10. La Niña Winter Source: NOAA
La Nina will shape the crop outlook for South America, with concerns about the possibility of drought in the major crop production regions.
Source: NOAA 10 10

11. Clearing Old Stocks
The current stocks set-up is reminiscent of the transition between the 2006 and 2007 crops.
The September USDA stocks report showed higher than expected stock levels. But the story is reminiscent of 2006/07, old crop corn waiting for new crop corn to blend. Feed demand picked up in the 1st quarter of the 2007 marketing year and the higher stock level gradually faded away. We’re looking at the same situation today.
Source: USDA 11 11

12. Hog Crush Margin
The Crush Margin is the return after the pig, corn and soybean meal costs.
Carcass weight: 200 pounds Pig price: 50% of 5 mth out lean hog futures
Corn: 10 bushels per pig Soybean meal: 150 pounds per pig
Source: Shane Ellis, ISU Extension

13. Cattle Crush Margin
The Crush Margin is the return after the feeder steer and corn costs.
Live weight: pounds Feeder weight: 750 pounds
Corn: 50 bushels per head
Source: Shane Ellis, ISU Extension

14. Historical Export Levels
Week 9 of marketing year
Export levels are ahead of last year’s pace. Soybean exports have already reached 1 billion bushels, and we just finished harvest. Corn numbers are relatively good, compared to history.
Source: USDA, FAS

15. Corn Export Shifts Source: USDA, FAS
Japan, Egypt, and China are buying more corn than they did last year at this point. Sales are also up to unknown destinations. Shipments to South Korea are off, but last year was a record year in that market. Overall, exports are up nearly 100 million bushels from last year at this time.
Source: USDA, FAS

16. Soy Export Shifts Source: USDA, FAS
Soybean demand is up in China, Mexico, and Indonesia. Sales are off slightly in Japan and Taiwan. While China is still the major player, there are signs of life in other markets. Overall export levels are up 160 million bushels from last year.
Source: USDA, FAS

17. Renewable Fuels Standard (RFS)
Crop
Year
Billion Bushels
2009
4.11
2010
4.43
2011
4.64
2012
4.86
Biofuels, especially ethanol, are still a major market driver. The Renewable Fuels Standard (RFS) outlines the government’s minimum levels for blending and use. The RFS points to 4.43 billion bushels of corn for ethanol out of the 2010 crop. USDA is currently at 4.7 billion bushels. So corn demand via ethanol is holding above the government requirement as production and blending margins have been positive for some time. 17 17

18. Ethanol Blending Advantage
As you compare the prices of a gallon of E10 to a gallon of regular unleaded gasoline, you see that E10 has offered fuel blenders a price advantage for most of the past four years. In fact, for most of the time, the advantage exceeded the tax credit of 4.5 cents per gallon. But the recent run-up in corn and ethanol prices, along with relatively flat gasoline prices, has put the squeeze on the blending margin. If margins continue to fall, we could see ethanol plants back off of production and shut down, like we saw in late 2008 and early 2009.

19. Iowa Corn Prices vs. Costs
Right now, futures are in $5.40 range for 2010 and 2011 corn
Even with higher fertilizer costs, corn’s profitable
Fertilizer prices have started to chase crop prices, but production costs look to remain below 2009 levels. Futures markets are offering significant returns over projected production costs right now.

20. Iowa Soybean Prices vs. Costs
Futures are nearly $12 for 2010 and 2011 beans
Returns are also very strong for soybeans.

21. This Year
Soy $12.10
Corn $5.43
This year’s price movements have been contra-seasonal (happens about one out of five years). Strong demands and relatively weaker supplies have shoved prices higher into harvest. And the threat of weaker supplies from South America are lending additional support for winter prices. Current cash prices in Iowa are running well above historical levels and above production cost estimates. So while crop yields are down, crop revenues are up.

22. Thoughts for 2011 and Beyond
General economic conditions
Continued economic recovery is a major key for crop prices
Long-term oil price remain in the $90 range
Supply/demand concerns
Stocks: 2009 vs crop
South America: La Niña impacts
Biofuels: E10, E12, or E15; Do the tax credits get extended/renewed?
Will supply be able to keep pace with demand?
2010/11: USDA: Corn $5.20, Soy $11.45
Futures (as of 11/8/2010): Corn $5.46, Soy $11.80
2011/12:
Futures (as of 11/8/2010): Corn $5.34, Soy $11.71
The big keys over the next couple of months will be the biofuel tax credits and feed demand’s pull on corn stocks. If the ethanol tax credit is not extended, corn demand via ethanol will likely back off from USDA projections. The stock bump from the September USDA reports should clear through feed by the December report, if not, the higher stock levels will also weigh on prices. But right now, the market is still primed to move up if demands hold and supplies continue to weaken.

23. Thank you for your time. Any questions. My web site: http://www. econ
Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: