Corn Balance Sheet Reset

July 5, 2023

Fourth of July fireworks weren’t the only eruptions in the nation over the past week – the corn market experienced an upheaval in reaction to unexpectedly high corn acres, weather pattern shifts, and stabilizing crop conditions. In the week from June 26 to July 3, the December 2023 corn futures contract dropped nearly a dollar landing at $4.93. Here is a look at the factors that led to this position and what we may expect ahead.


Analysis of Corn Acres, Weather, & Crop Conditions

In their quarterly crop acreage report, USDA raised the 2023 corn planted area estimate to 94.1 million acres, a 2.1 million acre increase from the earlier estimate, and a 6% increase from 2022. The only two years in which corn-planted acres have exceeded the updated 2023 estimate are 2012 with 97.3 million acres and 2013 with 95.4 million acres. In 2016, the U.S. achieved a record corn production of 15.15 billion bushels with 94.0 million planted acres.


Ultimately this level of corn acres emphasizes the desire of farmers to plant corn. U.S. corn farmers can and will produce corn when given the opportunity. This highlights the need for policy that supports corn use in sustainable biofuels and other technologies that can lower carbon emissions, demand that corn farmers can meet while also supplying feed and exports.


In recent weeks, concern for reduced corn production grew as dry weather and drought conditions expanded throughout major corn-producing states. While much of the focus is on the change to estimated corn planted acres, I was also interested in the estimate for corn harvested acres, as an early indication of farmer expectation for weather-induced losses.


USDA estimates corn harvested acres at 86.3 million acres, up 2.2 million from the earlier 84.1-million-acre estimate, and 9% higher than 2022. This indicates farmers did not expect weather-induced losses that would cause a higher-than-normal share of corn acres unable to be harvested for grain when survey results were collected in the first two weeks of June.


Plugging in an additional 2.2 million harvested acres means the corn balance sheet can face a 4.7 bushel-per-acre decline in yield from the initial 181.5 bushel-per-acre yield projection and maintain the same 15.3-billion-bushel production level. This would translate to a 176.8 bushel per acre national yield. Essentially, the higher acreage has reset the supply side of the corn balance sheet.


The Ag Economist’ Monthly Monitor, a new survey of more than forty agriculture economists, was collected in similar timing to the farmer survey for the acreage report. At the time, economists surveyed expected a small drop in corn yield to 178.68 bushels per acre, on average. Although lower than the current yield estimate, when accumulated over more harvested acres this would increase production by 1% to 15.4 billion bushels.


Although weather patterns have shifted and many drought-stricken areas of the Corn Belt have received precipitation over the past week, crop conditions are stable from a week ago. As of July 2, 51% of the nation’s corn crop is estimated to be in good or excellent condition, a 1% improvement from 50% good or excellent a week ago. While rain generally should help improve corn conditions, severe weather with damaging winds and hail have accompanied rains in some areas and other areas have not necessary rains. And the latest U.S. seasonal drought outlook for July through September shows drought remaining in much of the Corn Belt so this is not necessarily the end of weather worries for the year.


More Fireworks Ahead?

While the shift to more frequent rains in some areas is a welcome change, many of the nation’s corn plants had already entered the stage for ear size determination during drought stress. Some corn may not have reached full ear size potential, lowering the top-end of production possibility. But a transition to more favorable weather now will still be beneficial for developing kernels. When corn ears develop to the point for potential kernel counts, a better assessment of that impact can be made. I expect to see a small downward adjustment in yield in the July USDA crop report. If there are greater yield impacts that become apparent later this month, further adjustments would be reflected in future USDA reports.


Although planted acres were raised in this report, it is possible there will be softening in final planted acres. USDA notes farmers responding to the survey indicated 2.5 million acres of the estimated corn acres remained to be planted at the time of response in the first two weeks of June. The final USDA planting progress report as of 6/4/23 estimated corn at 96% planted. Last year, the farmers surveyed had 4.0 million acres left to plant at the time of the June acreage response and final planting acres were reduced 1.3 million from the June estimate, indicating farmers went on to plant about two-thirds of the anticipated acreage. Every year is different, but this provides some indication that a reduction in final planted corn acres is possible.


As we look ahead to more summer weather, the pollination period, and clarity on yield – the fireworks in the corn market may not be over yet.