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Silage economics stoke doubts over US crop data

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Does chopping corn for silage, because it is too poor for leaving for grain, mean farmers taking a hit in the wallet?

Not necessarily. Which is one reason why many analysts have a beef with US Department of Agriculture crop estimates.

Silage vs grain

The typical dynamics where it would be a toss-up for a grower to chop failed corn for silage, or just disc it in, have been ploughed in themselves by the high values of forage which have given value for any plant matter fit for feeding livestock.

When silage itself has hit $105 a tonne, "there comes a point where you can get a bigger return from chopping for silage than cutting for grain," Roy Huckabay, principle of broker Linn Group, said.

Assuming even eight tonnes per acres (the 2011 average yield for corn cut for silage was 18.4 tonnes per acre), a farmer would receive $840 per acre in revenue.

That is equivalent in grain terms, at $8 a bushel for corn, to a yield of 100 bushels per acre, which is hardly a disgraceful result for 2011.

Disputed number

"That is one reason why people have a problem with the USDA number for the corn harvest," Mr Huckaby said, which believes 3m acres fewer made it to being harvested for grain than officials are factoring in.

The USDA has stuck with a relatively low number, of 9.5%, for the proportion of corn either abandoned by farmers or chopped for silage, despite the worst drought in half a century.

Low that is compared, for example, with 1988, the last year of severe drought, when the figure was 14.0%.

And the USDA stuck with its figure at a meeting with analysts on Monday which, with some 140 registrants, had a record turn-out.

"Participants peppered the USDA" over its estimate for corn area harvested for grain "given the plethora of reported of drought-induced abandonment of corn acres", Richard Feltes at broker RJ O'Brien said.

The officials "stood firm".

'Rather difficult'

Not that this was the only bone of contention between analysts and USDA staff at a meeting which has become particularly important for investors, given the pressure that all government officials are under from budget constraints, at a time when poor harvests make accurate assessments of what supplies the US has got particularly important.

Gerald Bange, chairman of the USDA's World Agricultural Outlook Board, which produces the flagship Wasde crop reports, acknowledged that officials "want to do better" in estimating US crop inventory data, after a series of surprises in quarterly reports.

In the latest shock, at the end of September, the USDA pegged domestic corn inventories 11% below the market consensus, sending prices of the grain, temporarily, soaring.

It is "rather difficult" to estimate stocks, largely thanks to the difficulty of estimating how much is fed to livestock, he said.

Prospects for 2013

And the market is already gearing up for the next data wrangle, in February, when the USDA will make its first estimate for 2013 yields.

USDA grains supremo Jerry Norton signalled to the meeting that the USDA was likely to start with a relatively large yield figure, reflecting the long-term upward trend in productivity from the likes of better machinery and seed.

With a rapid spring harvest, such thinking warranted the initial estimate of a 166-bushels-per-acre corn yield this year.

That has proved significantly above the 122.0 bushels per acre that the crop is currently seen as turning out at.

Glass half empty approach?

However, is it right, after three years of progressively more disappointing yields, as the default position to believe that the long-term trend will continue?

"We would observe that relatively stable US weather pattern of the last two decades - through 2009-- may be shifting to a more unstable/variable weather pattern characterised by extremes," Mr Feltes said.

"In view of large early season to final declines in US corn yield over last three years, I suspect the trade will be sceptical of high early season corn yield forecasts until confirmed by weather and crop conditions through pollination."

By Mike Verdin

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