Posted by: usset001 | October 25, 2010

Corn stocks/use and the corn price reaction

I’m still trying to wrap my mind around the incredible price increase in corn since early summer. The October WASDE report put U.S. corn yields at 155.8 bushels per acre, about 3% below the trend-line yield of about 160 bushels per acre.

Trend-line yields – what an interesting concept. If you want to start a fight among grain analysts, offer your opinion on the trend-line yield in corn or soybeans. Some would argue for a trend-line yield of 164 bushels per acre in 2010, others look at something closer to 156 bpa. I’m using the FAPRI (Food and Agricultural Policy Research Institute) estimate of 160 bpa.

I decided to go back 30 years and examine the price response of December corn futures in years when the U.S. corn crop achieved average yields less than trend-line yields. These years included 1983, 1988, 1991, 1993, 1995, 2002 and 2010.

December Corn Futures, years with below trend-line yields, 1983-2010
Price increase from the spring/summer low to the late season high (%)
1983: 36% ($2.73 to $3.71)
1988: 65% ($2.20 to $3.63)
1991: 22% ($2.21 to $2.69)
1993: 28% ($2.27 to $2.90)
1995: 33% ($2.59 to $3.43)
2002: 35% ($2.17 to $2.93)
2010: 68% ($3.44 to $5.79)


The price response this year was greater than any of the other years examined. This occurred despite the fact that yields in 2010 were only modestly below trend. The price response is similar to 1988, a drought year that resulted in corn yields over 30% below trend.

For perspective, let’s consider the other years. In 1983 and 1993, corn yields were 20-25% below trend. In 1991, 1995 and 2002, corn yields were 8-12% below trend.

Why the sharp reaction this year versus past years? It’s all about the level of stocks on-hand when the smaller crop was harvested. 1983 and 1988 stand out as the worst years for yields, relative to trend. However, in each of these years we started with a stocks/use ratio of nearly 50% (i.e. we had nearly half a crop on-hand when the new crop was harvested). Our penchant for carrying large stocks ended in the late 1980’s. Nevertheless, we started 1991, 1993, 1995 and 2002 with stocks/use ratios of 16-24%.

We ended last year with a stocks/use ratio of 13%. That’s not much padding to break the fall, even if the fall was just 4% below trend.

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