The corn market appears to be having difficulty anticipating the likely size of the 2013 U.S. crop. Over the past three weeks, December 2013 corn futures have traded from a low of $5.12 to a high of $5.735 as production expectations continue to unfold.

Production uncertainty is the result of uncertainty about both the likely magnitude of planted acreage and yield prospects associated with late planting of the crop in many areas. Nationally, an estimated 46 percent of the crop was planted as of May 15 this year, compared to an average of 72 percent in the previous 34 years. The largest percentage of the acreage remained unplanted as of May 15 this year since 1995. An estimated 9 percent of the acreage was still to be planted as of June 2nd. More information about planted and harvested acreage of corn for grain will be available with the USDA's Acreage report to be released on June 28. Those estimates are based primarily on data collected during the first two weeks of June. The USDA conducts two surveys during that period. One is a probability area frame survey consisting of about 11,000 parcels of land for all crops included in the survey. The parcels average about one square mile in size and enumerators contact operators within the sampled parcel to account for the crop acreage. The second survey is a probability sample of about 70,000 farm operators for all crops. Operators in this sample are contacted by mail, internet, telephone, or personal interview to obtain information on planted and harvested acreage.

Expectations for the estimates of planted and harvested acreage of corn appear to be in a wide range for at least two reasons. First, some analysts reportedly think that the USDA's March survey of prospective corn plantings resulted in an under-estimate of farmers' actual planting intentions. Under normal planting conditions, then, some would have expected to see a larger estimate in the June report. The second and more important reason for the wide range of expectations stems from late planting. Estimates of the number of acres that were intended for corn that have been or will be switched to another crop or not planted at all vary considerably. The June 28 report will shed some light on that issue, but the larger than normal amount of unplanted acreage during the survey period suggests the report will still reflect intentions in some cases.

There is also a wide range of yield expectations for the 2013 corn crop. The variation stems from the difficulty of assessing the likely impact of the combination of late planting, flooding, and replanting in some area and timely planting and favorable growing conditions in other areas. Most appear to expect an average U.S. yield below trend value in 2013. The calculation of trend value and the expected shortfall from trend, however, vary widely. Yield prospects will take on more importance following the June 28 Acreage report. Weather conditions and weekly crop condition ratings will provide some indication of yield prospects, although there has not been a strong correlation between crop ratings and yield in recent years.

The price implications of unfolding production prospects will need to be evaluated in terms of the expected size of the market for U.S. corn during the 2013-14 marketing year. In the May 10 WASDE report, the USDA projected the size of the market at 12.92 billion bushels under conditions of ample supplies and moderate prices. That projection is 1.785 billion bushels larger than expected consumption during the current marketing year characterized by small supplies and high prices. Large increases in consumption are expected in each major category of use–ethanol, exports, and feed and residual use. The largest percentage increase (73 percent) is expected for exports while the largest absolute increase (925 million bushels) is expected for feed and residual use. At 5.35 billion bushels, the projection of feed and residual use is the largest since 2007-08. The large projection reflects an expected increase in livestock feeding rates, not an increase in the number of grain consuming animal units. The expected higher feeding rate reflects a combination of lower feed prices and larger residual use associated with a very large crop. The projection appears generous and the forecast of residual use would likely decline with a smaller crop forecast, even if prices are at the projected level.

A large number of acreage, yield, consumption, and price scenarios are still possible at this time. Importantly, there is room for a much smaller crop than the early prospects of 14 billion bushels before rationing would be required during the upcoming marketing year. A crop of 13 billion bushels would be sufficient to meet expected needs at current new crop price levels. If harvested acreage is near 85.5 million acres (four million below the early forecast), as an example, a crop of that size would require an average yield of 152 bushels, about 10 bushels below trend value. The USDA will provide updated projections in the June 12 WASDE report.

Issued by Darrel Good
Extension Economist
Purdue University

The USDA's weekly Crop Progress report indicated that 43 percent of the U.S. corn acreage was planted during the week ended May 19, 2013. In terms of percentage of acreage planted, that equaled the record progress for the week ended May 10, 1992. In 1992, 79.3 million acres of corn in the U.S. were planted, implying that 34.1 million acres were planted during the peak week that year. U.S. corn planting intentions for 2013 were reported at 97.3 million acres, implying that 41.8 million acres were planted last week. Conventional wisdom explains the rapid rate of planting progress this year as a function of larger and more technologically sophisticated planters.

We begin our analysis by noting that total planting progress does not necessarily reveal the pace (speed) of corn planting during the week because the pace of planting depends on the number of days during the week that were suitable for planting. In an earlier farmdoc daily post based on an analysis of Illinois planting data, we concluded that the pace of corn planting in terms of acres planted per suitable field day during the peak week of planting had increased about 28 percent from 1970 to 2011. Since corn acreage in Illinois increased by about 20 percent during that time period, the percentage of acreage planted per suitable field day during the peak week of planting had increased only marginally over time.

Here, we repeat that earlier analysis of peak week corn planting with the addition of 2012 and 2013 planting data. The analysis is limited to Illinois due to the lack of data relative to the number of suitable field days available per week in other states over a long time period. There is not an obvious reason that the results for Illinois would differ for other major corn producing states.

As indicated in Figure 1, a record 57 percent of Illinois corn acreage was reported to be planted in the week ended May 19, 2013. That exceeds the previous total peak-week planting progress record of 50 percent in 1973, 1987, and 1999. Based on planting intentions of 12.2 million acres, the weekly progress implies that a record 7 million acres of corn were planted in the state last week. That is well above the previous record of 5.5 million acres in 1982. As noted above, many observers were quick to credit larger equipment and technological developments for the record planting progress this year. However, planting progress during any week is also influenced by weather conditions, so that rapid progress could also be partially attributed to unusually favorable weather. We measure the effect of weather on planting progress by calculating planting progress per suitable field day as reported by Illinois NASS.

Figure 2 portrays the percentage of the corn acreage planted in Illinois per suitable field day in the peak week of planting from 1970 through 2013. The calculations confirm our previous findings of a very modest increase in the planting rate per suitable day over time. With 5.8 suitable days reported for the week ended May 19, 2013, an average of 9.8 percent of the acreage was planted per suitable field day during the week. That is above the long term trend of 7.6 percent, but well below the previous highs of 11.1 percent in 1975 and 13.2 percent in 1999 and equal to the rate in 1994.

Finally, Figure 3 portrays the number of acres planted per suitable field day during the peak week of corn planting from 1970 through 2013. The trend line confirms our earlier estimate of a 28 percent increase in the number of acres planted per suitable field day during the peak week of planting since 1970. The implied planting rate of 1.2 million acres per suitable field day last week is well above the trend rate for 2013 of 917 million acres. However, the implied rate is well below the previous record of 1.42 million acres in 1999 and the rate of 1.24 million acres in 1975. The rate also exceeded 1.0 million acres in 1994, 2007, 2009, and 2010.

Implications

The rate of corn planting during the peak week of planting, measured in total acres, has increased over time. Much of that increase is likely attributable to larger equipment and improved technology. However, the increased speed of planting has just about offset the increase in total acreage so that the pace of planting as measured by percentage of total acreage planted has increased very slowly over time. The peak-week corn planting pace, at least in Illinois, was not record high in 2013, as measured in either total acres or percentage of acres planted per suitable field day.

These results suggest that the daily rate at which the U.S. corn crop can be planted is likely still less than generally perceived. A key observation is that weekly progress in percentage terms should be normalized for differences in suitable field days in order to make 'apples to apples' comparisons across time. From this perspective, we see no reason to fundamentally alter the conclusion we reached in 2011 about planting progress, "The evidence suggests that the crop is not planted more quickly with larger, but fewer planters than was accomplished with smaller, but more numerous planters in the past...Weather is likely still the largest determinant of overall planting progress rather than equipment size."

Finally, some argue that the combined pace of corn and soybean planting during the week of peak planting should be analyzed to more correctly measure the trends in planting pace over time. This is relevant because there has been a trend over time to earlier planting of soybeans. We have not done a full analysis of combined corn and soybean planting progress. However, we can observe that the total number of acres of corn and soybeans planted per suitable field day in Illinois during the peak week of corn planting was about 80,000 acres higher in 1999 than in 2013.

Issued by Scott Irwin and Darrel Good
Department of Agricultural and Consumer Economics
University of Illinois

Based on corn planting intentions of nearly 97.3 million acres (implied harvested acres for grain near 90.2 million) and a trend yield of 161.5 bushels, the 2013 season started with expectations of a record U.S. crop near 14.6 billion bushels.    A crop of that size would be 1.5 billion bushels larger than the previous record crop of 2009 and the record large consumption during the 2009-10 and 2010-11 marketing years.

Production prospects are now being called into question due to the late start to the planting season in most of the major corn production states.  Increasingly, the late start to the season and prospects for further delays in many areas due to upcoming weather suggest that a larger than average percentage of the 2013 crop will be planted "late".  All other factors equal, late planting poses some yield threat relative to trend value.  In addition, continued delays to planting, particularly in northern areas, might reduce the acreage planted to corn relative to intentions reported last month.  The magnitude of potential yield and acreage reduction, if any, is very difficult to assess at this time since the planting season extends for another month.  Instead, it is useful to calculate the size of crop needed to meet likely consumption during the 2013-14 marketing year.  That calculation can be used to gauge any reductions in production potential as the planting and growing season progresses.

Assessing consumption potential for the upcoming marketing year is not straight- forward since consumption depends on the strength of demand in each of the major consumption categories as well as the price of corn.  The price of corn, in turn, will be influenced by the size of the U.S. crop.  Domestic non-feed use of corn is the least complicated category of consumption to forecast since demand is relatively stable and consumption is least sensitive to the price of corn.  Use in that category is dominated by corn consumed for ethanol production.  Domestic ethanol consumption increased rapidly from 2006 through 2010 as a result of the Renewable Fuels Standards.  Consumption, however, stagnated near 13 billion gallons in 2011 and 2012 as the E10 blend wall was reached.  The blend wall is expected to expand only slowly during the 2013-14 corn marketing year due to limited market penetration of both E15 and E85 and lack of growth in motor fuel consumption. Assuming a small positive trade balance and slow growth in domestic ethanol consumption, about 13.3 billion gallons of ethanol could be produced during the 2013-14 corn marketing year, requiring about 4.84 billion bushels of corn.  Corn used for other industrial and food products has been very stable in recent years near 1.4 billion bushels.  Use at that level next year, would point to total domestic non –feed use of corn near 6.24 billion bushels.

Domestic feed and residual use of corn peaked at 6.15 billion bushels in 2005-06 and then trended lower as distillers' grains from the ethanol industry replaced corn in livestock feed rations. Use was estimated at 4.545 billion bushels last year and is projected at 4.4 billion bushels for the current year.  Use in that category is thought to be the most price sensitive so that consumption during the 2013-14 marketing year will depend more heavily on the size of the crop.  Assuming the 2013 corn crop is larger than that of 2012, that there is some modest expansion in pork and broiler production, and that there is some modest increase in production of distillers' grains, feed and residual use of corn might recover to about 4.8 billion bushels during the upcoming marketing year.

From 2003-04 through 2009-10, annual U.S. corn exports ranged from 1.8 to 2.4 billion bushels.  Forecasting exports near the average of two billion bushels represented a reasonable expectation.  Exports, however, declined to 1.54 billion bushels last year and are projected at only 800 million bushels for the current marketing year.  Another large crop in Brazil and a rebound in Argentine production this year may limit the rebound in U.S. exports during the year ahead.  A key demand uncertainty is the likely size of the Chinese market.  Exports can be forecast with very little confidence.   A very modest 110 million bushels of U.S. corn have been sold for export next year.  As a starting point, we use a projection of 1.2 billion bushels.

Based on current conditions, an expectation of a market for 12.2 to 12.3 billion bushels of U.S. corn in 2013-14 seems reasonable.  A crop of 12.5 billion bushels, then, would be large enough to supply the market and add a small amount to year ending stocks.  A crop of that size would be 2.1 billion bushels, or 14 percent, smaller than production prospects based on planting intentions and trend yield.  Prospects have not yet been reduced by that amount.

The USDA will provide an assessment of potential supply, consumption, and price prospects for the 2013-14 corn marketing year in the May 10 WASDE report.

December 2013 corn futures prices have demonstrated a very erratic pattern since early February, with a trading range of about $0.70. Prices have reflected both old crop and new crop fundamentals, including expectations about producer planting intentions and the likely timeliness of planting.

The price of that contract declined during February, moved higher during March, and dropped sharply following the USDA's March 28 release of the Grain Stocks and Prospective Plantings reports. March 1 stocks of corn were much larger than expected and producers confirmed intentions for large corn plantings again this year. New crop futures have been choppy over the past two weeks as the start to planting in the Corn Belt has been delayed. The price is currently near the bottom of the recent range. As usual, planting delays raise questions about the likely magnitude of corn acreage and the potential impact on average yields. Some indication of the potential acreage impact of continued delays in planting is revealed in the historic acreage response in years of late planting. There is no standard definition of late planting for corn. Based on research of yield response to planting date, we have previously defined late planting for most of the production regions as occurring after May 20. Based on this definition and the USDA reports of weekly planting progress, we calculate the percentage of the crop planted late each year.

Since 1990, there have been 10 years when the USDA's weekly Crop Progress report indicated that 20 percent or more of the corn crop was planted late by our definition. The final USDA estimate of planted acreage was less than Intentions reported in March in 9 of those years. However, the difference between intentions and actual acreage was large only in 1993 and 1995 when 42 and 47 percent of the acreage was planted late, respectively. Planted acreage was 3.247 million (4.2 percent) less than intentions in 1993 and 3.844 million (5.1percent) less than intentions in 1995. In the other 7 years, when late planting ranged from 20 to 37 percent, acreage was less than intentions by an average of only 335,000 acres, ranging from 32,000 to 691,000 acres. In 2009, when 29 percent of the crop was planted late, acreage exceeded intentions by 1.396 million acres even though prevented corn acreage was reported at nearly 1.9 million acres.

Historical corn acreage responses suggest that large declines from intentions occur only under conditions of extreme planting delays. However, responses have varied widely from year to year. In addition, the analysis here does not consider state-by-state acreage responses. For the current year, concerns about planting delays are focused on the northern Plains and upper Midwest where snow accumulations point to the potential for more prolonged delays. These are the areas with a much narrower planting window for optimum corn yields. Corn acreage below intentions in those areas would not be a surprise as acreage is shifted to crops with a shorter growing season or is not planted at all. However, such declines could be offset by increases in areas with more timely planting. Overall, slightly less corn acreage than reported in March seems likely if planting delays continue. Expectations about corn acreage will begin to firm up after the current week of generally rainy weather in the Corn Belt and a more accurate assessment of corn acreage will be available in the USDA's June 28 Acreage report.

Agronomic research that has quantified the relationship between planting date and corn yields has clearly identified a yield penalty associated with late planting. In the Corn Belt, that penalty accelerates for planting dates after about the third week of May. However, planting date is only one factor that influences corn yields. Over a fairly wide planting window, yields are more influenced by growing season weather than by planting date. As a result, the U.S average yield relative to trend yield has varied considerably regardless of the percentage of the crop planted late. In the 10 years since 1990 with the largest percentage of the crop planted late, the U.S. average yield was below trend in five years, about equal to trend in two years, and above trend in three years. The largest of the five yield shortfalls were in the extreme late planted years of 1993 (widespread flooding) and 1995 (very hot summer). Ironically, the largest yield shortfalls relative to trend in modern history were in the early planted years of 1988 and 2012 and in 1983 when plantings were delayed modestly.

The likely size of the 2013 U.S. corn crop is still very uncertain at this early stage of the season. With recent beneficial precipitation in much of the Corn Belt, prospects for only modest losses in corn acreage, and ample time remaining to plant the crop, prospects for a large crop are still very much in play.

Issued by Darrel Good
Department of Agricultural and Consumer Economics
University of Illinois

The USDA's quarterly estimates of U.S. corn inventories have become a source of substantial surprises for the corn market. Dating from March 2010, 11 of the past 13 quarterly stocks estimates have deviated from expectations by enough to generate large price movements. During that period, USDA stock estimates have been both much larger and much smaller than generally expected.

Market participants form expectations for the quarterly stocks estimates based on the level of stocks at the beginning of the quarter and a projection of use during the quarter. Exports and domestic processing uses of corn during the quarter can be projected fairly closely. Projections of feed and residual use of corn are based on a variety of factors, including historical use, the most recent levels of use, livestock numbers, livestock feeding profitability, and likely levels of feeding of other commodities. Surprises in the USDA estimates, then, mean that feed and residual use during the quarter deviated from market expectations. Those deviations, in turn, alter expectations for feed and residual use for the remainder of the marketing year and the likely level of stocks at the end of the marketing year.

While it should be expected that the market will not always correctly anticipate USDA estimates, the recent pattern of large and seemingly alternating direction of the surprises in the quarterly corn stocks estimates is problematic. One of the results is a pattern of feed and residual use of corn that varies considerably from quarter to quarter and from year to year. That pattern can make it difficult to anticipate future feed and residual use and can result in wide swings in projections of feed and residual use for the marketing year or estimates for the previous year in the case of the September 1 stocks estimate. A number of examples can be cited, but consider the most recent experience. The smaller than expected estimate of stocks for September 1, 2012 resulted in the estimate of feed and residual use for the 2011-12 marketing year being increased by 162 million bushels. The smaller than expected estimate of December 1 stocks resulted in the forecast of 2012-13 marketing year feed and residual use being increased by 300 million bushels in the February 2013 WASDE report. That forecast was increased by another 100 million bushels in a rare change in the March 2013 WASDE report. Presumably, the projection will be reduced sharply in the report to be released on April 10.

The difference between the USDA's March 2013 stocks estimate of 5.399 billion bushels released on March 28 and the average trade guess was about 370 million bushels, one of the largest differences in the past 30 years. Old crop corn futures declined by more than $0.80 per bushel in the initial reaction to the larger than expected estimate. The dilemma now, however, is what to expect for the June 1, 2013 stocks estimate. The implied rate of feed and residual use of corn in the first half, and particularly in the second quarter, of the 2012-13 marketing year is quite low. The slow rate of feed and residual use does not seem consistent with livestock numbers, a sharp reduction in the production of distiller's grains, and the implied negative feed and residual use of wheat during the same six month period. March 1 wheat stocks also exceeded market expectations by a large margin. Experiences over the past three years suggest that the June corn stocks estimate may "correct" for some of these apparent inconsistencies. If that turns out to be the case, the magnitude of the current price weakness may not be justified. Because the reasons for the sometimes large deviations between USDA estimates and market expectations are not obvious, the June estimate may or may not provide another surprise.

While not normally an issue, the March 1, 2013 soybean stocks estimate was also a surprise. At 999 million bushels, the estimate was about 50 million bushels larger than the average trade guess. While the USDA no longer estimates quarterly feed, seed, and residual use of soybeans, the stocks estimate implies negative use in that category for the quarter. The only other instances of negative use during the second quarter of the marketing year in recent history were in 1988-89 and in 2009-10. The June 1 stocks estimate this year will also be difficult to anticipate.

With the large March 1 stocks estimate, the "small crop-long tail" price pattern for corn and soybean prices continue. While planting intentions for corn and soybeans revealed on March 28 were near expectations, new crop prices have also weakened as expectations for larger stocks at the end of the current marketing year provide some additional supplies for the 2013-14 marketing year. Focus will now turn to planting conditions and planting progress. Without widespread planting delays, new crop price weakness is expected to continue.

Issued by Darrel Good
Agricultural Economist
University of Illinois

An examination of 2012 corn yields relative to trend yields provides evidence of where the drought had its worst impacts. For corn, the lowest state yields occurred in Kentucky, Missouri, Indiana, and Illinois. Most states in the southeast had above trend yields. Minnesota and North Dakota had yields close to trend.

2012 Yields Relative to Trend

Figure 1 gives a percent for each state that indicate a state's yield relative to trend yield. For example, Illinois has a 62% yield relative to trend. This means that the 2012 yield of 105 bushels is 62% of the 169 bushel trend yield. The 169 trend yields results from statistically fitting a straight line through yield data from 1975 through 2011, and then extrapolating the yield to 2012. The 169 bushel yield represents an expected yield for 2012. If 2012 could be repeated 20 times, the average of the yields would be close to 169 bushels per acre. A value below 100% indicates that the state yield was below trend yield and a value above 100% indicates that the 2012 yield was above trend.

Relative to trend yields, the lowest yields were in Kentucky (47% of trend) and Missouri (53%). Most states adjacent to Kentucky and Missouri also had low yields. Indiana's 2012 yield was 61% of trend, Illinois was 62% of trend, Tennessee was 62% of trend, and Kansas was 68% of trend. Overall the worst of the drought relative to corn yields was centered in an area running from Kansas through Missouri and Southern Illinois, into southern Indiana and Kentucky.

Most of the states in the western corn-belt had below average yields. Iowa's 2012 yield was 77% of trend, South Dakota was 74% of trend, and Nebraska was 85% of trend. While below trend, yields in the western corn-belt were not as poor as in the eastern corn-belt. The drought had larger impacts on the eastern corn-belt than on the western corn-belt.

Other states had yields above trend. With the exception of Alabama, all states from Texas through North Carolina had above trend yields. States with exceptionally high yields include South Carolina (131% of trend), Georgia (124%), Mississippi (114%), and Louisiana (113%).

Another area that had near normal production was Minnesota (96% or trend) and North Dakota (96%).

Summary

The drought year resulted in its lowest yields from Kansas through Kentucky and impacted the eastern corn-belt worse than the western corn-belt. Because the corn-belt was impacted, lower total supplies of corn occurred as a result of this drought.

In some senses, though, the US dodged a bullet with the 2012 drought. Much lower total supplies would have resulted had the center of the drought occurred in eastern Iowa and northern Illinois. A center here would have impacted all of the corn-belt in a much worse way, potentially causing the western corn-belt to have as low of yields as the eastern corn-belt. As it actually occurred, Iowa and other western corn-belt state were not as badly hit as could have been the case.

Issued by Gary Schnitkey
Department of Agricultural and Consumer Economics
University of Illinois

In the next several months, planting decisions will be finalized, with one of the central question being how much corn will be planted. Herein, the corn versus soybean planting decision for 2013 is examined for high-productivity farmland. If more corn acres are to be planted in 2013, more corn likely needs to be planted on high-productivity farmland. In most cases, switching to more corn on high productivity farmland means a reduction in 2013 soybean acres. While planting corn is projected more profitable in 2013, a longer run perspective indicates that planting more corn in 2013 may reduce profits in future years.

Single Year Budgets

Budgets for central Illinois farmland with high-productivity are shown in Table 1. These budgets are for the following crop--previous crop combinations having the following yields: corn-after-soybeans with yield of 198 bushels per acre, corn-after-corn with 188 bushels per acre, continuous corn with 180 bushels per acre, soybeans-after-corn with 57 bushels per acre, and soybeans-after-two-years of corn with 59 bushels per acre. Commodity prices represent current bids for fall 2013 delivery: $5.70 per bushel for corn and $12.80 per bushel for soybeans. Non-land costs total $510 per acre for corn-after-soybeans, $525 per acre for corn-after-corn and continuous corn, and $308 per acre for soybeans-after-corn, and soybeans-after-two-years-corn.

Note that corn is more profitable than soybeans in all cases shown in Table 1. Operator and farmland returns are $643 per acre for corn-after-soybeans, $571 for corn-after-corn, and $525 for continuous corn while returns for soybeans are $446 for soybeans-after-corn and $471 for corn-after-two-years-corn (see Table 1). The lowest corn return - $525 for continuous corn - is $54 per acre higher than the highest soybean return - $471 for soybeans-after-two-years-corn. Evaluating corn versus soybeans in a one year context suggests planting corn.

Crop in Rotations

Evaluating cropping decisions in a single year context does not consider the impacts of current planting decisions on returns in future years. If, for example, all farmland in 2013 is planted to corn, there will be no possibility of planting corn-after-soybeans in 2014 as there were no soybeans in 2013. Planting soybeans in 2013 allows for a 2014 planting of the most profitable corn crop, corn-following-soybeans.

These sorts of decisions can be evaluated by calculating the profitability of rotations. Profits are calculated for three rotations:

1. Corn-soybeans rotation. Half the acres are corn and half are in soybeans. Corn follows soybeans and soybeans follow corn.
2. Corn-corn-soybeans rotation. Two-thirds of the acres are in corn and one-third is in soybeans. Corn follows soybeans on half the corn acre and corn follows corn on the other half of corn acres. Soybeans follow corn.
3. Continuous corn.

In calculating rotation returns, I assume that a constant rotation has been obtained. This means that all continuous corn acres are in continuous corn and continuous corn returns will be used in calculating continuous corn rotation return. It is possible to have higher returns for all corn if a switch is being made away from soybeans in the previous year (moving from a corn-soybeans rotation to continuous corn).

Rotations returns are:

• $545 per acre for corn-soybeans rotation (average of $643 return for corn-after-soybeans and $446 return for soybeans-after-corn).
• $562 per acre for corn-corn-soybeans (average of $643 return for corn, $571 for corn-after-corn, and $471 for corn-after-two-years-corn).
• $525 per acre for continuous corn.

These rotation returns suggest that the corn-corn-soybeans rotation is the most profitable rotation.

For the corn-corn-soybeans rotation to be more profitable than corn-soybeans rotation, corn-after-corn yields cannot be too far below corn-after-soybeans yields. The above budgets assume that the188 bushel corn-after-corn yield is 10 bushels less than the 198 bushel corn-after-soybeans yield. The corn-soybeans rotation has higher returns than the corn-corn-soybeans rotation if the corn-after-corn yield is below180 bushels per acre. This implies that the corn-soybeans rotation is more profitable if there is an 18 bushel yield drag for corn-after-corn (198 bushel corn-after-soybean yield minus 180 break-even corn-after-corn yield). In this case, this works out to be a 10 percent yield drag.

Continuous corn is not as profitable as corn-corn-soybeans. For continuous corn to have the same profitability as the corn-corn-soybeans rotation, the continuous corn yield has to be 186.5 bushels. This 186.5 bushel yield compares to the budgeted yield of 188 bushels for corn-after-soybeans. Essentially, continuous corn cannot have a yield drag compared to corn-after-corn given the prices, yields, and costs shown in Table 1.

The Choice in 2013

Planting corn in 2013 is projected to be more profitable than soybeans. For example, the corn-after-corn return of $571 per acre is $125 per acre higher than soybeans-after-corn. This $125 difference is large compared to historical differences in returns. Between 2006 through 2011, corn has average $58 per acre more profitable than soybeans on central Illinois high-productivity farmland.

While planting my corn in 2013 may be more profitable, it may require giving up returns in future years, as fewer acres of corn-after-soybeans can be planted in 2014. Which way farmers will go is an open question. In recent years, many farmers have had much worse yield drags for corn-after-corn than those implied by budgets in Table 1. Reports of corn-after-corn having more than 40 bushels lower than corn-after-soybeans are not uncommon. These poorer corn-after-corn yields may cause some farmer to planting more soybeans.

Summary

Corn is projected more profitable than soybeans in 2013. Planting more corn in 2013 can result in lower returns in 2014 because fewer acres of corn-after-soybeans can be planted.

Rotation projections in this article are based on budgets in Table 1. Results are sensitive to yield drags for corn-after-corn and continuous corn. Also, farmland of lower productivity generally has less of an advantage in planting more corn. Historically, corn yields rare higher relative to soybean yields on higher productivity farmland. Hence, planting more soybeans on lower productivity farmland than suggested herein may be warranted.

Issued by Gary Schnitkey
Department of Agricultural and Consumer Economics
University of Illinois

Also available at:
http://farmdoc.illinois.edu/manage/newsletters/fefo13_01/fefo_13_01.html

On Jan. 11, the USDA released a series of reports that provide important fundamental information for the crop markets. The information included the final estimate of the size of the 2012 United States corn and soybean crops, estimates of December 1 crop inventories, a winter wheat seedings estimate, and updated U.S. and world supply and consumption forecasts for the current marketing year. University of Illinois agricultural economist Darrel Good offered his analysis of the reports.

"For corn, the 2012 U.S. crop is estimated at 10.78 billion bushels, 55 million larger than the November forecast," Good said. "The estimate of planted acreage of corn for all purposes was increased by 209,000 acres, the estimate of acreage harvested for grain was reduced by 346,000 acres, and the yield estimate was increased by 1.1 bushel per acre. The production estimate was larger than the pre-report average trade guess of just over 10.6 billion bushels, but the estimate of Dec. 1, 2012, stocks of corn was actually much smaller than the average guess. Stocks were estimated at a 9-year low of 8.03 billion bushels, compared to the average guess of about 8.2 billion. The stocks estimate implies that feed and residual use of corn has not slowed as a result of the small crop and high prices that began in June of last year. Because of the harvest of a large quantity of corn before the marketing year began on Sept.1, 2012, feed and residual use should be evaluated over the six-month period from June through November 2012. For that period, feed and residual use of corn totaled about 2.39 billion bushels, about 110 million more than use during the period from June through November 2011. Such an increase is a little surprising but only because feed and residual use of wheat during that period was 125 million bushels larger than use in the previous year. As we have pointed out before, total grain feeding has been supported by only a very modest cut in livestock numbers and a sharp decline in the production of distillers' grain," Good said.

Unlike other years of small production and high corn prices, Good said that feed use of corn has remained large. "Such a high rate of use has been possible because corn used for ethanol production has declined about 10 percent year over year and because exports have been almost non-existent. Exports during the first quarter of the 2012-13 marketing year were at a 41-year low of 220 million bushels. For the year, the USDA now projects exports at a 43-year low of 950 million bushels. Year-ending stocks of corn are projected at a 17-year low of 602 million bushels, and the marketing-year average farm price is expected to be record high, in a range of $6.80 to $8.00 per bushel. Based on the average price received to date, it appears that the average for the year will be near the low end of that range," Good said.

According to Good, the 2012 U.S. soybean crop is now estimated at 3.015 billion bushels, 44 million larger than the November forecast, reflecting an average yield of 39.6 bushels per acre, 0.3 bushel above the November forecast. Stocks of soybeans on Dec. 1, 2012, were estimated at a nine-year low of 1.966 billion bushels, implying a larger-than-average "residual" disappearance during the first quarter of the marketing year. The projection of marketing-year exports was unchanged at 1.345 billion bushels, reflecting the continuing expectations of a record South American crop in 2013, a larger domestic crush needed to meet export demand for meal and oil, and limited supplies of U.S. soybeans. Year-ending stocks are projected at 135 million bushels, up only 5 million from last month's projection, and the marketing-year average farm price is projected in a range of $13.50 to $15.00. Based on the average selling price to date, the average for the year will likely be in the lower half of that range.

"The Dec. 1, 2012, inventory of U.S. wheat was reported at 1.66 billion bushels, slightly smaller than the average guess," Good said. "Feed and residual use of wheat during the first half of the marketing year was about 220 million bushels larger than use during the same period last year, prompting the USDA to raise the forecast for the year by 35 million bushels and to lower the projection of year-ending stocks by a similar amount. The projection of the marketing-year average farm price was lowered by $0.05 per bushel in recognition that much of the 2012 crop has already been sold.

Good said that winter wheat seeded for harvest in 2013 is estimated at 41.82 million acres, 496,000 more than were seeded for harvest in 2012. The increase was smaller than expected, with area seeded to soft red wheat up 16 percent and area seeded to hard red and white wheat down about 2 percent.

"Taken together, the information in last Friday's reports may provide some short-term support for old-crop corn prices and for wheat prices," Good said. "With such large crop prospects in

South America and the likelihood of a large rebound in U.S. corn and soybean production in 2013, new-crop corn and soybean prices may remain under pressure," he said.

Source: Darrel Good, 217-333-4716; d-good@illinois.edu

News writer: Debra Levey Larson, 217-244-2880; dlarson@illinois.edu

This is a presentation summary from the 2012 Illinois Farm Economics Summit (IFES) which occurred December 10-14, 2012 at locations across Illinois. Summaries and MP3 podcasts of all presentations will be republished on farmdoc daily. The 'Presentations' section of the farmdoc site has PDF presentation slides and MP3 podcasts from all presenters here.

The main issue shaping the political debate around the 2012 Farm Bill is the desire to cut spending for deficit reduction. While farm programs do not represent the biggest piece of the Farm Bill pie, they are the main targets for program modifications and reductions in overall support as they become more difficult to justify with farm incomes reaching record levels.

The United States Senate has passed its version of the 2012 Farm Bill. The House Ag Committee has also passed a version of the 2012 Farm Bill, but it has not yet reached a vote on the House floor. While the two versions of the Farm Bill are different and will require some reconciliation before a final Farm Bill is sent to the President's desk, they have both been scored to achieve savings relative to current programs.

Both versions achieve these savings via cuts to Commodity, Nutrition, and Conservation programs while projected support for Crop Insurance programs would increase. These proposed changes suggest a shift in farm program focus from income supports to risk management where the federal crop insurance program serves as the main safety net for crop producers.
Existing commodity programs - direct and counter-cyclical, ACRE, and SURE - are eliminated in both Farm Bill proposals. The Senate version replaces these programs with a "shallow-loss" revenue program where farmers would have the choice between county- and farm-level coverage. The House version would offer producer's the choice between a countylevel revenue program or price supports with updated target prices for eligible commodities.

In addition, supplemental crop insurance coverage is created in both versions. The shallow loss revenue programs base their guarantees on Olympic averages of recent yields and national cash prices, and have payment limits and eligibility rules based on adjusted gross income. In contrast, supplemental insurance coverage bases its guarantee on insurance (futures) prices and trend yields and will not be subject to payment limitations, but will require the producer to pay a subsidized portion of the premium.
Thus, these new and modified programs will require producers to make choices among programs which offer varying forms of price andyield risk protection. Furthermore, their individual crop insurance purchases may also influence the risk protection offered by the supplemental insurance coverage option and their choice among the modified commodity programs.

Despite more than a year of debate, the likelihood of a Farm Bill being passed in 2012 is still very uncertain. The threat of "permanent" law being put in place if current programs expire should encourage some form of action by Congress prior to the end of 2012. Possible scenarios for the Farm Bill in the lame duck session include House and Senate passage via standard or expedited processes, or a short- or long term extension of current programs. Given the short timeframe, the general view is that some form of extension will be passed and the Farm Bill will be revisited in 2013.

Issued by Nick Paulson
Department of Agricultural and Consumer Economics
University of Illinois

Additional Resources:

The slides for this presentation can be found at:
http://www.farmdoc.illinois.edu/presentations/IFES_2012

Monke, J., M. Stubbs, and R. A. Aussenberg. "Expiration and Possible Extension of the 2008 Farm
Bill." R42442, Congressional Research Service, July 25, 2012.
http://nationalaglawcenter.org/assets/crs/R42442.pdf

Paulson, N., G. Schnitkey, and C. Zulauf. 2012. "Comparison of Changes in Program Spending in the Senate and House Farm Bills."
http://farmdocdaily.illinois.edu/2012/07/comparison-of-changes-in-progr.html

Zulauf, C., G. Schnitkey, and N. Paulson. 2012. "First Draft of New House Farm Bill."
http://farmdocdaily.illinois.edu/2012/07/first-draft-of-new-house-farm.html

Zulauf, C. "Update on U.S. Senate Version of Crop Safety Net."
http://farmdocdaily.illinois.edu/2012/07/update-on-us-senate-version-of.html