1. Corn and Soybean Outlook
LMIC Spring 2010 Industry Outlook Conference
Denver, Colorado
Apr. 11, 2010
Chad Hart
Assistant Professor/Grain Markets Specialist 1

2. U.S. Corn Supply and Use 2007 2008 2009 2010 Area Planted (mil. acres)
93.5
86.0
86.5
88.8
Yield
(bu./acre)
150.7
153.9
164.9
160.9
Production
(mil. bu.)
13,038
12,092
13,131
Beg. Stocks
1,304
1,624
1,673
1,899
Imports 20 14 10 15
Total Supply
14,362
13,729
14,814
15,045
Feed & Residual
5,913
5,246
5,450
5,350
Ethanol
3,049
3,677
4,300
4,500
Food, Seed, & Other
1,338
1,276
1,265
1,290
Exports
2,437
1,858
1,900
2,100
Total Use
12,737
12,056
12,915
13,240
Ending Stocks
1,805
Season-Average Price
($/bu.)
4.20
4.06
3.60
USDA’s 2009 projections based on conditions around Feb. 1 and USDA’s 2010 projections from Ag Outlook conference. Crop year 2009 is the largest corn crop, but the early outlook for 2010 is a record setter. Demand is projected to recover across the board (higher feed, ethanol, and export demand) for 2009/10, but we may want to watch feed demand as this increase is likely harvest loss (not feed use). Ethanol demand is about 100 million bushels above mandate levels. Export demand is being helped with some smaller customers buying early. Ending stocks are up with the record crop, but could decline with additional harvest losses. Current price estimate of $3.70/bushel for 2009/10. The early 2010 outlook calls for area moving back to corn. Feed demand is expected to slip, but this is offset by more feed usage of distillers grains. Ethanol demand is projected to remain above mandate levels and exports slowly climb. Despite the relative increase in demand, USDA has corn prices moving down to $3.60.
Source: USDA, with my modifications
for 2010 acreage 2 2

3. U.S. Soybean Supply and Use
2007
2008
2009
2010
Area Planted
(mil. acres)
64.7
75.7
77.5
78.1
Yield
(bu./acre)
41.7
39.7
44.0
42.9
Production
(mil. bu.)
2,677
2,967
3,359
3,307
Beg. Stocks
574
205
138
190
Imports 10 13 15 8
Total Supply
3,261
3,185
3,512
3,505
Crush
1,803
1,662
1,730
1,655
Seed & Residual 93
101
148
168
Exports
1,159
1,283
1,445
1,325
Total Use
3,056
3,047
3,322
3,147
Ending Stocks
358
Season-Average Price
($/bu.)
10.10
9.97
9.45
8.80
USDA’s 2009 projections based on conditions around Feb. 1 and USDA’s 2010 projections are from the Ag Outlook conference. The 2009/10 crop is the largest soybean crop. Crush demand is projected to recover slightly, based on soybean meal export demand. Export demand has remained strong as China continues to buy and other markets have started to pick up. Longer-term, we will see increased export competition from South America. Ending stocks are rebounding, but still very tight. Current price estimate of $9.45/bushel for 2009/10. For 2010/11, USDA has acreage falling slightly, but we’re still looking at another large soybean crop. Crush demand is expected to back off as export demand for soybean meal shifts to South America. Export demand falls for the same reason. Given the relative supply/demand shifts, USDA has soybean prices falling back to $8.80 for 2010/11.
Source: USDA, with my modifications
for 2010 acreage 3 3

4. World Corn Production Source: USDA
World corn production has projected to be up slightly, with the U.S. increase offsetting a drop in the rest of the world. Half of the drop in the rest of the world is in China (drought). Argentina’s crop is rebounding from last year’s drought.
Source: USDA 4 4

5. Corn – Argentina & Brazil
South American corn area is down over the past two years. Last year’s drought pulled production down as well. Production estimates have been raised over the past couple of months.
Source: USDA 5 5

6. World Soybean Production
World soybean production is projected to be up, with increases in the U.S., Brazil, and Argentina. We are looking at record production out of South America.
Source: USDA 6 6

7. Soybeans – Argentina & Brazil
Area has shifted strongly to soybeans. And production is expected to rebound from last year’s drought. So we will have a lot more competition on the export front as their harvest kicks in.
Source: USDA 7 7

8. 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
Based on current futures, adjusted for average Iowa basis. Breakeven around $40/head. Margins look decent for hogs placed now through May, but head south as we go into summer. There is some recovery in margins next fall.
Source: Dr. John Lawrence, ISU Extension

9. Exchange Rates (Jan. 2003 = 1) Source: USDA, ERS
The dollar had been on a long-run slide, but turned around quickly last fall. The slide resumed in As the dollar falls, our agricultural exports look less expensive to the rest of the world and exports tend to increase. USDA export projections are up with the fall of the dollar. But the dollar may fight back in 2010, especially if interest rates increase. The early call for 2010 shows a relative flat dollar (up against the Euro and Brazilian Real, down against the Yen and the South Korean Won).
Source: USDA, ERS

10. Corn Export Sales Source: USDA, FAS
Corn sales are roughly in line with last year, but a recent upkick has put us above last year’s pace. Hopeful signs include early purchases by some non-traditional markets.
Source: USDA, FAS

11. 2009 U.S. Corn Exports Source: USDA, FAS
Africa and South Asia have been early buyers. Japan is a little behind last year’s pace, but is expected to continue as our largest export market. A recent trade of some concern, Japan switched a corn purchase over to Argentina.
Source: USDA, FAS

12. Soybean Export Sales Source: USDA, FAS
Early soybean sales to China are double last year’s pace. China, thus far, has purchased more than the equivalent of Iowa’s soybean production. So export strength continues in that market. But as we look later in the year, competition will build from South America. Sales have begun to slow down.
Source: USDA, FAS

13. 2009 U.S. Soybean Exports Source: USDA, FAS
It’s China, but we are now seeing growth in other markets (such as Mexico).
Source: USDA, FAS

14. Renewable Fuels Standard (RFS)
Crop
Year
Billion Bushels
2008
3.57
2009
4.11
2010
4.43
2011
4.64
Over the near term, corn-grain ethanol is the big biofuel. The table shows the corn needed to create enough ethanol to meet the conventional biofuel targets. For the 2008 crop year, the mandate called for 3.57 billion bushels of corn for ethanol. We used 3.7 billion bushels. For the 2009 crop year, the mandate points to 4.11 billion bushels and projected usage is at 4.2 billion bushels. By 2015, we are looking at roughly 5 billion bushels worth of demand. 14 14

15. Ethanol Margins Source: ISU, CARD
The graph breaks ethanol prices into costs and returns on a per gallon basis. Yellow is energy costs to create a gallon of ethanol. Maroon is corn costs (less distillers grains value) to create a gallon of ethanol. Blue is all other costs and returns. The black line is a rough measure of breakeven for the industry. The high returns in 2005 and 2006 spurred on ethanol development. The breakeven returns of the last year have halted that construction. But margins have improved in the last few months.
Source: ISU, CARD

16. Ethanol Blending Advantage
Ethanol blending margins have mostly stayed positive, so blenders have continued to pull in ethanol. Margins above 4.5 cents indicate blending is economical without the tax credit. Ethanol blending margin = (wholesale gasoline price + federal taxes) – (90%*wholesale gasoline price + 10%*wholesale ethanol price + federal taxes – tax credit).

17. Crude Oil Prices Sources: EIA, NYMEX
Crude oil is working its way back up, providing room for higher ethanol and crop prices.
Sources: EIA, NYMEX

18. Corn
The relationship between corn prices and ending stocks used to be fairly stable, but…

19. Corn
The next few years have changed that relationship. Crop prices are now much more responsive to tighter stocks.

20. Projected 2009 Season-Average Corn Price
The futures market was more bearish over most of the growing season, but has flipped to the bullish side since October. The futures market had consistently pointed to a 2009/10 season-average price of $3.70 to 3.80 before the Jan. USDA report, but fell to around $3.50 right after the report.

21. Projected 2009 Season-Average Soy Price
As with corn, the futures market had flipped to the bullish side since October. The futures market has consistently pointed to a 2009/10 season-average price of $9.50 to prior to the Jan. USDA report. But the market backed down to the $9.25 – 9.35 range afterward.

22. Ratio: Nov. 2010 Soy/Dec. 2010 Corn
Futures prices for the 2010 crop have been favoring corn recently. Average around 2.5, above 2.5 favor soybeans.
Source: CBOT

23. Input Costs Source: USDA, Agricultural Prices, Mar. 30, 2010
Fertilizer and fuel prices better than last year, but seed and machinery are up. Overall, cost changes favor corn.
Source: USDA, Agricultural Prices, Mar. 30, 2010

24. Projected 2010 Season-Average Corn Price
The futures market was more bearish over most of the growing season, but has flipped to the bullish side since October. The futures market had consistently pointed to a 2009/10 season-average price of $3.70 to 3.80 before the Jan. USDA report, but fell to around $3.50 right after the report.

25. Projected 2010 Season-Average Soy Price
As with corn, the futures market had flipped to the bullish side since October. The futures market has consistently pointed to a 2009/10 season-average price of $9.50 to prior to the Jan. USDA report. But the market backed down to the $9.25 – 9.35 range afterward.

26. Iowa Corn Prices vs. Costs
Right now, about a dime over breakeven
Early numbers from Mike Duffy show corn costs backing down to 2008 crop year levels.

27. Iowa Soybean Prices vs. Costs
Right now, 36 cents over breakeven
Soybean costs also fall, but hold above 2008 crop year levels.

28. Thoughts for 2009/10 and Beyond
General economic conditions
Continued economic recovery is a major key for crop prices
Weakness in the dollar helps exports, but dollar may fight back
Nearby crude oil prices have finally punched through the $85 barrier
But long-term futures have come down
Supply/demand concerns
South America: Record soybean crop and large corn crop
Weather concerns for planting fading
2009/10: USDA: Corn $3.60, Soy $ Futures: Corn $3.47, Soy $9.41
2010/11: USDA: Corn $3.60, Soy $ Futures: Corn $3.64, Soy $9.04

29. 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: