Corn's Not-So-Great Expectations Todd Hultman, DTN Grains Analyst
Now that USDA has pegged 2016 corn production at 15.15 billion bushels and has already seen 4.56 bb, or 27%, of beginning supplies disappear in the first quarter, USDA has projected corn's average farm price between $3.10 and $3.70 a bushel, its lowest estimate for January in 10 years.
With USDA also estimating corn's production cost at $3.85 a bushel in 2016 ($672.39 an acre, including $179.06 for land expense), early prospects are not encouraging for many producers. Past reports show that USDA's production estimate is probably within 1% of any final revision, but the ending stocks estimate has a 90% confidence interval of plus or minus 29.5%. In other words, USDA's U.S. ending stocks estimate of 2.355 bb for 2016-17 will probably land somewhere between 1.425 bb and 3.050 bb when Sept. 1 stocks are revealed on the final day of September 2017.
Given the wide range of uncertainty, it is understandable that USDA's January estimate of corn's average farm price is also on shaky ground as past years have shown. On one hand, we might think that estimating corn prices for the next seven-and-a-half months shouldn't be too hard since we already know the supply part of the equation. What is not known yet, however, is how this summer's weather will influence old-crop prices, and that influence can be substantial.
The good news for producers is that USDA's past January estimates are often not accurate and, in many cases, have been far off the mark. Instead of assuming USDA's January price estimates for corn will be correct in 2017, we would do better to see them as parameters for a technical breakout.
DTN's national index of cash corn prices closed at $3.24 on Jan. 13. As long as prices trade between $3.10 and $3.70, they can be said to be within the realm of USDA's expectations. But any move outside the range deserves extra attention as a potential sign of unexpected change.
One of the best examples of what can happen when you use USDA's prices for breakouts took place in 2013 when USDA set its estimates too high, at $6.80 to $8.00. Prices triggered a bearish warning in April when they fell below $6.80 and finished the year near $4.00.
In both 2015 and early 2016, corn prices actually stayed close to USDA's estimates. In July of 2016, however, prices broke below the bottom end at $3.30 and fell lower toward harvest.
Corn prices trading close to USDA's estimates have historically been the exception, not the rule. Here in 2017, the estimate of $3.10 to $3.70 is USDA's lowest expectation for corn prices in 10 years. It may be a reasonable starting point, but there is no reason to assume it will be the end of the story.
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