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Despite ethanol industry’s voracious appetite, expect corn stocks to increase next year

(CALS agricultural economist Ed Jesse (also currently CALS interim associate dean and Extension program leader for agriculture and natural resources) provides the following analysis and suggests some useful outlook websites.)

USDA issued its first crop production estimates of the season on August 10 in a report eagerly anticipated by market analysts, traders, and farmers. There were no big surprises, since USDA’s acreage projections were issued last month and the yield forecasts were about in line with trade expectations.

Corn production was forecast at a record 13.1 billion bushels, up 24 percent from 2006 based on the largest corn acreage since 1933 and an estimated yield of 152.8 bushels per acre, second only to the 160.2 bushels per acre recorded in 2004. Compared to 2006, expected yields were up substantially in the Illinois and the western corn belt; down in the East. Wisconsin was forecast to produce a record 478.5 million bushels of corn, 9.5 percent more than the previous record set in 1994 and 19.5 percent more than harvested in 2006. Expanded Wisconsin corn production comes from 500,000 more acres than last year and a yield of 145 bushels per acre, up 2 bushels from 2006.

The huge expected new corn crop should provide ample supplies for corn users, including corn ethanol plants that are expected to absorb about 3.5 billion bushels in the 2007-2008 marketing year. That’s 1.4 billion bushels more than last year, but the projected total corn crop is up 2.5 billion bushels, which means carryover corn stocks will increase between 2007 and 2008. The sheer size of the new crop will severely strain harvest equipment, grain storage, and transportation systems.

Even though the large corn crop will help moderate corn prices, the farm-level price in 2007-2008 will likely average 25-50 cents per bushel higher than last season’s estimated $3.05 per bushel. While corn supplies will not be as tight as last season, much of last season’s crop was sold before the strong price run-up started in early 2007.

In striking contrast to corn, 2007 soybean production was forecast by USDA at 2.63 billion bushels, down 18 percent from 2006 and the smallest harvest since 2003. Harvested acreage is expected to be down 11.2 million acres and yields down 1.2 bushels per acre. Wisconsin soybean production was forecast at 60 million bushel on 250,000 fewer acres than 2006 and a 1 bushel per acre lower yield.

Despite a much smaller crop, U.S. soybean supplies in 2007 should be adequate to meet expected usage, mainly because of a large carryout from the 2006 crop and slightly smaller exports. Farm-level new crop soybean prices will be about $1/bushel higher than the $6.35 average of 2006-07. The higher price will also help ration the reduced soybean crop.

The USDA crop production report suggested that hay supplies could be tight in Wisconsin this winter. Wisconsin farmers harvested 1.6 million acres of alfalfa in 2007, 50,000 acres less than 2006. Wet weather and drought trimmed yields from 2.8 to 2.4 tons per acre, leaving alfalfa hay production at 3.84 million tons, off 17 percent from 2006. Fortunately, the alfalfa crops in North and South Dakota (major sources of Wisconsin hay imports) are expected to be up dramatically from drought-shrunken 2006 crops.

If you’d like to keep track of the whipsaw trends in current farm markets, Jesse suggests the following sources.

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