“We’re pushing the Corn Belt up into the Dakotas and down into Kansas, into production land with lower-than-average trend yields. We’re getting marginal land into corn production.”

According to the 20-year corn yield trend, the U.S. has been below trend for six out of the last seven years, says Davis.

“It makes sense because we’re adding a lot of new land. Last year, we were a little below 9 percent from trend, and in 2010, about 5 percent below trend. The South had fairly good corn yields, if your expectation is trend. In the Southern region, if you have a crop, you have great prices to take advantage of.”

USDA is projecting China to import nearly 750 million bushels of corn, says Davis.

“Corn stocks will be very tight, and we’re looking at stocks-to-use below 6 percent. On a global basis, corn stocks have declined from the previous year, and on a stocks-to-use basis, we’re at some of the tightest levels we’ve ever seen. We just don’t have a lot of cushion in the balance sheet to withstand further production cuts.”

Looking ahead to next year, if U.S. producers increase corn acres and make a good yield, there is the potential for building stocks, lowering the price, and having the traditional margin squeeze that hasn’t been experienced in corn production in about five years, says Davis.

On the other hand, continuing drought conditions could keep stocks relatively tight, he adds.

“All eyes are on South America as spring begins,” says Davis. “Weather remains a major factor for crops in both North and South America.”

An El Niño weather event is needed to help break the current U.S. drought, says Davis, and some climatologists are now saying that El Niño is weak.

“A strong El Niño will bring more rain to South America — something USDA already has in its projections — and it also increases the likelihood of breaking the Midwest drought.”

Looking at droughts from 1890 to the present, the shortest drought was 18 months, and the current U.S. drought began in July, says Davis.

“So if the past is indicative of the future, the current drought could increase into the next crop year. The 1930s and 1950s droughts were 51 and 47 months long, respectively.”

If U.S. producers increase corn acres and get a good yield in 2013, there is the potential for building stocks, lowering the price, and having the traditional margin squeeze, he says.

“We haven’t experienced that on the corn side for the last five years. But we could be back in the game of cost of management and tight margins.”

phollis@farmpress.com