POINTS TO RATIONING
August Crop Production report contained surprisingly small forecasts
of the 2002 U.S. corn and soybean crops and a much lower estimate
of the wheat crop. If final production estimates are near the
August forecast, the consumption of U.S. corn and soybeans will
have to decline during the 2002-03 marketing year. This will be
the first year of "rationing" since 1995-96.
U.S. corn crop is forecast at 8.886 billion bushels, nearly 200
million less than the average trade guess. The small production
figure reflects a forecast of harvested acreage of only 71 million
acres and a national average yield of 125.2 bushels per acre.
The forecast yield is 13 bushels below last year's yield and would
be the lowest in 7 years. Compared to yields of a year ago, the
largest declines are expected in the northeast, southeast, the
far western corn belt, and the eastern corn belt. The average
yield in Iowa (146 bushels) is expected to be the same as last
year's yield, while the average yield in Minnesota (140 bushels)
is expected to be 10 bushels above last year's average. Forecast
yield declines are 12 bushels for Illinois, 32 bushels for Indiana,
and 26 bushels for Ohio.
For the 2002-03
marketing year, the USDA sees a 115 million bushel increase in
domestic processing use of corn and a 100 million bushel increase
in exports. In order to keep year ending stocks above a pipeline
level, domestic feed and residual use is expected to be reduced
by 225 million bushels. The needed cut in feed use of corn is
compounded by expectations of a small sorghum crop. That crop
is forecast at 380 million bushels, 135 million smaller than the
U.S. feed grain crop is not expected to be offset by larger production
in the rest of the world. At 621 million tons, the foreign crop
is expected to be the same size as last year's crop, with smaller
crops in Argentina and the former Soviet offset by larger crops
in China. World coarse grain consumption is expected to exceed
production by 36 million tons, or 4.2 percent. The USDA projects
the 2002-03 marketing year average price of corn in a range of
$2.30 to $2.70 per bushel, compared to $1.93 for the year just
U.S. soybean crop is projected at 2.628 billion bushels, 262 million
smaller than the 2001 crop and the smallest crop since 1996. The
projection reflects harvested acreage of just over 72 million
acres and a national average yield of 36.5 bushels per acre. The
yield forecast is 3.1 bushels below last year's average and would
be the lowest yield since 1995. Compared to last year's yields,
significant declines are expected in the eastern corn belt (except
for Michigan and Wisconsin), the southeast, and the far western
corn belt. Higher yields are expected in Iowa, Michigan, Minnesota,
For the 2002-03
marketing year, consumption of U.S. soybeans will have to decline
in order to maintain carryover stocks at a pipeline level of about
150 million bushels. The USDA projects a 25 million bushel reduction
in the domestic crush and a 240 million bushel (22.6 percent)
reduction in exports. The small U.S. soybean crop is expected
to be partially offset by a larger South American harvest in 2003.
That crop is projected at 3 billion bushels. The forecast suggests
that the South American crop will exceed the U.S. crop for the
first time. South American exports are expected to jump by 40
percent during the 2002-03 marketing year. World inventories of
soybeans are expected to be reduced to the lowest level in 5 years.
The USDA projects the season's average price of soybeans in a
range of $5.15 to $6.05, compared to the $4.35 average price for
the year just ending.
wheat crop is estimated at 1.686 billion bushels, 63 million smaller
than the July forecast and 272 million less than the 2001 harvest.
As a result, inventories of U.S. wheat are expected to be reduced
to 467 million bushels by the end of the marketing year (June
1, 2003). That would be the smallest year ending inventory in
6 years. Like coarse grains, foreign wheat production is not expected
to offset the smaller U.S. crop. Foreign production is forecast
at 526 million tons, almost identical to the size of the 2001-02
harvest. Smaller crops in Argentina, Australia, Canada, Eastern
Europe, and the former Soviet Union are expected to be offset
by larger crops in the European Union and India. World wheat stocks
are expected to decline for the fourth consecutive year. The USDA
projects a season's average price in a range of $3.20 to $3.80,
compared to last year's average of $2.78.
in the USDA August reports, pushed 2002 marketing year futures
prices to new contract highs. The market will now try to decide
how subsequent crop forecasts will differ form the August forecast.
In addition, the market will try to evaluate the strength of demand.
Together, these factors will determine how much rationing has
to be accomplished and how high prices will have to go to ensure
the rationing job will take place. For now, we still anticipate
an early season high in both corn and soybean prices.