Last September I wrote:
"My basic projections based on this data implies that to get any where near $4/bu, taking all other USDA estimates on usage and harvested acres, corn yields need to be in the 163-164 bu/acre range. More complicated estimates and some adjustments with the usage numbers may be a little friendlier."
| September WASDE | November | ||||
| Projected Yield: | 169.9 | 167 | 163.5 | 175.4 | 175.4 |
| Projected Stocks to Use: | 16.40% | 14.70% | 12.65% | 19.62% | 17.23% |
| Projected Price: | 3.36 | 3.62 | 4.04 | 2.95 | 3.24 |
But those price projections were based on what seemed to be the loudest voices in the markets thinking that national corn yields would likely be somewhere less than 170 bushels/acre largely because of uncertainty of yields and variation due to late planting, as well as diminishing crop conditions. For example, from the Aug 21 crop conditions report:
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State : Very poor : Poor : Fair : Good : Excellent
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: percent
:
Colorado .......: - 3 16 71 10
Illinois .......: 4 10 32 42 12
Indiana ........: 5 12 30 42 11
Iowa ...........: 3 9 27 51 10
Kansas .........: 4 10 29 43 14
Kentucky .......: 1 3 19 61 16
Michigan .......: 2 10 32 45 11
Minnesota ......: 1 2 15 65 17
Missouri .......: 3 6 30 50 11
Nebraska .......: 3 10 24 45 18
North Carolina .: 1 6 21 51 21
North Dakota ...: 6 11 33 45 5
Ohio ...........: 2 7 31 45 15
Pennsylvania ...: - 1 7 45 47
South Dakota ...: 9 18 31 40 2
Tennessee ......: - 2 12 51 35
Texas ..........: - 3 18 57 22
Wisconsin ......: 2 7 20 50 21
:
18 States ......: 3 9 26 48 14
:
Previous week ..: 3 9 26 49 13
Previous year ..: 2 5 18 54 21
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Overall good to excellent was about 62% compared to 75% the previous year. (I'll point out that KY corn crops were exceptional with 71% at good to excellent).
So my price projections back in September were capped out based 169.9 yields which I thought at the time was the most conservative/pessimistic projection. Then came the October report with the 171.8 bushel per acre estimate and the most recent November 175.4 shocker. So above I have my price projections with this yield, first based on the September report numbers backing the stocks to use estimate ($2.95/but yikes) and then with the updated November numbers. Were it not for the changes in use (depicted below) prices could be even worse. With today's Dec 17 futures at $3.40 and and RSI at 45 (and bouncing around the 40's since September) it doesn't indicate oversold. With a naive nearest neighbor estimate based on last year's stock's to use we have an upper bound around $3.45. Looking out at March $3.52 and May futures at $3.61 looks like what you see is what you get with the December contract.
| U.S. Corn Balance Sheet | 2017-18 | 2017-18 | |
| WASDE | WASDE | ||
| Item | September | November | Change |
| Supply: | |||
| Planted Acreage (million acres) | 90.9 | 90.4 | -0.5 |
| Harvested Acreage | 83.5 | 83.1 | -0.4 |
| Yield (Bushels/Acre) | 169.9 | 175.4 | 5.5 |
| Beginning Stocks (million bushels) | 2,350 | 2,295 | -55 |
| Total Production | 14,184 | 14,578 | 394 |
| Imports | 50 | 50 | 0 |
| Total Supply | 16,585 | 16,922 | 337 |
| Consumption: | |||
| Feed and Residual (million bushels) | 5,475 | 5,575 | 100 |
| Ethanol (5,500) | |||
| Other Food, Seed, and Industrial | 6,925 | 6,935 | 10 |
| Exports | 1,850 | 1,925 | 75 |
| Total Consumption | 14,250 | 14,435 | 185 |
| Ending Stocks (million bushels) | 2,335 | 2,487 | 152 |
| Ending Stocks/Total Consumption (%) | 16.39% | 17.23% | 0.84% |
| 2017 Stocks to Use: | 17.23% | ||
| Projected Price: | 3.1538087981 | ||
| Projected Price (power): | 3.2414480127 | ||
| NN Estimate: | 3.45 |
*data pulled from: https://www.usda.gov/oce/commodity/wasde/index.htm
So where does this leave my revenue projections from back in September?
Lets look more at the assumptions I made back in September:
| Costs, Revenues, and Returns Per Acre | |
| Total Variable Costs | $400.00 |
| Fixed Costs | $75.00 |
| Total Operating Costs | $475.00 |
| Land | $175.00 |
| Total Land and Operation Costs | $650.00 |
| Yield | 175 |
| Price | $3.40 |
| Total Revenue | $595.00 |
| Returns/A | -$55.00 |
| Farm Level Costs, Revenues and Returns | |
| Total Acres: | 2,000 |
| Total Revenue: | $1,190,000.00 |
| Total Costs: | $1,300,000.00 |
| Total Return to Labor | -$110,000.00 |
And here are the updated scenarios:
| September | Nov (A) | Nov (B) | Nov(C) | |
| Projected National Yield: | 169.9 | 175.4 | 175.4 | 175.4 |
| Projected Stocks to Use: | 16.40% | 17.23% | 17.23% | 17.23 |
| Projected Price: | 3.36 | 3.24 | 3.4* | 3.4* |
| Return to Labor: | $44,000.00 | -$4,000.00 | $60,000.00 | -$110,000.00 |
The September, and November scenarios A and B are based on 200 on farm bushel per acre yields with projected and current (*) market prices while scenario C assumes the national average being the on farm yield at current (*) market prices. It is easy to see how much yield matters here. The price projections are all based on this. (or costs for that matter).
Per my last update, these numbers only reflect current prices and hypothetical production costs. My next update will look at how different marketing scenarios could have impacted revenues and returns.
Per my last update, these numbers only reflect current prices and hypothetical production costs. My next update will look at how different marketing scenarios could have impacted revenues and returns.
***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****
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