USDA’s monthly report is out today. A lot of attention is
going to the new corn estimates, which put forecasted yields at 123 bu/acre.
Trend yield for 2012 is about 160 bu/acre, so that would mean a 23% drop from
trend. That’s still not quite as bad as 1988, which was closer to 30% belowtrend. As Wolfram showed in a previous post, the heat this year has been about
as bad as ever, the rainfall not quite as bad as 1988. So overall I don’t think
the downward revisions by USDA should come as much of a surprise.
What I hadn’t been paying as much attention to was the
situation in other crops. Lost in the news was that USDA actually downgraded
the forecast of global production not just for corn and soy, but also wheat and
rice. Wheat downgrades are mainly related to the former soviet union, with
Russia and Kazakhstan seeing “July heat and dryness across most of the spring
wheat growing areas.” For rice, there have been lots of stories about the late
monsoon in India, although conditions seem to be improving there a lot in the
last week.
Overall, the production forecasts for wheat, rice, and
coarse grains are all lower than what production was last year. This is not so
unusual in a historical sense. For example, I plot below the global production for these three since
1961 (all points up to 2010 are from FAO, last 2 are estimates/forecasts from the
latest USDA numbers). Gray lines show years where production of all three was
down from previous year. Since 1961 there have been 7 other years where all
three crops dropped, including three since 2000.
Even if it’s not unusual, it’s a little surprising to me
that it would occur in a year that had such high prices to begin with. A lot of
economists argue that yields are very price responsive, for example farmers will
put more fertilizer or labor into a crop if prices are high. Others say that
yields and production are not very responsive in the short term, but over the
long term production will respond (mainly because of expanding area). I’m not
sure yet what to make of the recent data, but it certainly seems like a good
test of theory. Hopefully somebody out there is calculating what production
changes over the past 3-4 seasons, when prices have been high, can tell us
about the likely value of supply elasticity.
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