Terry Roggensack of The Hightower Report and Dan Basse of Ag Resource Company offered their outlook today on what the August USDA supply and demand report will hold, and how that may affect grain markets. Many corn-producing Midwestern states experienced some of their hottest and driest Julys on record, causing some market participants to expect a further drop in yields from previous USDA estimates. A Reuters analysis this week put expected corn yield in the U.S. at about 127 bushels per acre.
Roggensack said he has corn production estimates that range from 9.86 to 11.89 billion bushels:
“This is a scary number when you consider USDA last month had a 12.72 billion bushel usage number for the coming year. I think the production number could come in 10.5, or a little higher. A yield estimate at 127.3 is the average estimate. I would guess it could be closer to 120 than 127. That means we would need to price out about 2.47 billion bushels from demand. This also means that we’ve got nearly 63 million tons less corn on the world market.”
Basse says if corn gets to that level in terms of bushels, rationing will become a serious issue:
“If I do my modeling on that kind of crop it tells me corn needs to go somewhere between $9.85 and nearly $11 a bushel to ration the demand that’s there. Again, that assumes that ethanol consumes 45 or 47 percent of that crop. I can’t see U.S. ethanol demand getting below 4.6 or 4.7 billion bushels even if they change the mandate. So this leaves us in a big, big problem. Who’s gonna go without? Is it the livestock guy? Is it the exporter? Is it the ethanol producer? Our bet at the moment is that the livestock people are going to take the biggest brunt on this. We believe also that U.S. corn exports could be the lowest since 1974 at about 1.3 billion bushels, but even then it’s hard to make this all work. So we have balance sheets that are almost insolvable that makes this rationing job for the marketplace very very difficult.”
Watch their full projections in the video above.