USDA Projects $4.20 Corn, Chief Economist Explains Why

USDA’s Ag Outlook Forum painted a brighter forecast for corn demand this year. While USDA does expect a 7% increase in production this year, due to a bump in acres and increase in yield, the agency is also forecasting an increase in domestic use, as well as exports.

Highlights of the corn balance sheet forecasts include:

  • Corn Crop Production Projection: 15.2 billion bushels
  • Expectation of return-to-trend yields of 179.5 bushels per acre
  • Feed, seed and industrial use projected to be up 4%
  • Corn used for ethanol forecast to grow 5%, based on increased driving
  • Feed and residual use forecast to increase 200 million bushels

Even with a projected increase in exports, USDA expects a larger crop to produce lower prices. Currently, USDA penciled $4.20 into the balance sheet for the 2021/2022 farm price for corn, which is 10 cents lower than what the agency had figured in for last year’s crop.

What’s driving the decrease? USDA chief economist Seth Meyer says the figure is the estimate farm price, not futures, which takes into account several factors.

“We're taking a look at how you clear that balance sheet next year,” says Meyer. “When you look at things like futures market, there's always weather risk in those futures markets and other things.  When we look at this, it's conditioned on that 92 million acres and a normal harvesting rate and a normal weather yield. So, the futures market may show a greater amount of risk in that position.”

Meyer points out USDA is still expecting good prices to continue into next year, which will in turn drive cash receipts on farms higher. But as the current demand picture sets a high bar for exports, Meyer says the balance sheet hinges on the strong Chinese corn demand coming to fruition, and purchases translating into actual shipments. 

Meyer offers examples, “for instance, Chinese behavior of what corn is on the books, the rebound in the swine herd, and what we've conditioned to these prices and our export projections on our continued strong Chinese demand,” he says. “I think you need it. So, is there a risk? Yes, there's a risk, but our expectation is that there will be follow through on exports. And that's largely a Chinese-driven story.”

Lower corn prices also mean USDA has lower feed costs penciled into the corn production puzzle this year. 

You can view the entire report and discussion from the Ag Outlook Forum here

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