Nothing has rocked your world more than $5-, $6-, $7-per-bushel corn. Now some market analysts are talking about $9 corn.
While that may seem absurd, just a year ago the absurdity was the prospect of $7 corn.
The reality is that recently the United States has built a consumption base for corn that we were not prepared to meet. I’m not saying that crop farmers, agronomists and plant geneticists haven’t improved yields dramatically. Their productivity gains are as stellar as yours.
But Mother Nature still has something to say about the crop outcome, and this year’s low corn (and soybean) carryover stocks, expanding global demand and burgeoning ethanol production have tipped the balance. Just this summer, ethanol surpassed farm animals as the No. 1 U.S. corn consumer.
USDA’s August World Supply and Demand Estimate gave us the first serious look at the growing season, and it wasn’t pretty. USDA dropped its corn-yield estimate to 153 bushels per acre and put 2011/2012 ending stocks at 714 million bushels, making next year’s outlook even tighter than this year’s.
The true impact of the cool, wet spring, followed by the massive “heat dome” that hit the United States during corn pollination, has yet to be seen. That’s not to overlook the impact of flooding in some areas and drought in others. Late-August conversations suggested that the crop looks good — from the road — but the ears were not as big or filled out as one would like to see. Some analysts think that a 150-bushel-per-acre crop could still unfold.
There’s also speculation that final harvested acreage won’t meet predictions. The ratio of harvested to planted acres in late August was 91.4 percent; last year the final was 92 percent. While combines have been rolling in some areas for a few weeks now, others haven’t yet started. Until the actual loads come in from the field, it’s all speculation.
One thing is certain — whether we’re talking about a 28-day or a 16-day corn carryover — it’s too darn low. This year’s supply was tight, but next year is setting up to be tighter. We will ration corn, but exactly how and how painful that will be has yet to play out.
While feed use by livestock, dairy and poultry producers has dropped in recent months, USDA is counting on more cuts. It projects feed usage at 4.9 billion bushels, down 100 million bushels from last year. CME Group’s Daily Livestock Report points out, “If USDA is right, current feed-use estimates imply further contraction in U.S. protein supplies in 2012.”
We know that the beef herd is shrinking. Poultry producers are cutting back, but they can turn production on a dime. The September Hogs and Pigs Report will tell us more, but pork producers have likely held steady. The export market has been good to you this year. With prospects of increased sales to South Korea, should the free-trade agreements finally pass (and that’s looking more likely), as well as helping China fill its huge pork demand, it’s hard to cut production back too far. Of course, that could change if corn prices skyrocket further, the pork export market softens or lenders pull back.
In its August WASDE report, USDA predicted 2011/2012 average corn prices between $6.20 and $7 per bushel. Chris Hurt, Purdue University economist, says that while it depends on the individual farm, “Producers could pay $6.65 per bushel based on U.S. average corn price and still meet other costs.”
USDA also is expecting ethanol processors to reduce their corn appetite. Sure, ethanol’s price is tied to crude oil, and that’s been trending down as economic uncertainties weigh on the oil market. However, the downside potential is limited by production mandates.
Will there be a change of heart in Washington? Experience says no, but we’re all forging new ground. Congress returns to work this month and I’m betting they’ve gotten an earful from their constituents after the August credit-ceiling debacle. Now is the time for animal agriculture to knock on lawmakers’ doors to get reductions in the 2012 ethanol mandate. Unless final yields set records this fall, it’s not unrealistic to call the feed-grain outlook an emergency.
If ethanol doesn’t back down, then animal agriculture and exports are left to bridge the supply gap. But foreign buyers have few options, and if the dollar remains low (which you need for your exports), they will be in the market for U.S. corn. After all, foreign governments are intent on tempering their food inflation too.
USDA has said “no” to releasing non-sensitive Conservation Reserve Program acres. But the agency’s own numbers and the reality that’s coming via increased domestic and global corn use might change that thinking. That’s another message to share with lawmakers.
Last March, I talked about having a feed contingency plan for your herd. Now, extending that to fill actual feed-grain needs into 2012 is not something to ignore.
Climbing out of this corn shortfall is going to take a few very good crop years, and we haven’t yet started the climb.