As spring rolls around each year, all eyes turn toward planting intentions and the new-crop outlook.
So far the outlook has been rocky. It started with USDA’s Prospective Plantings Report, which showed that farmers would plant 78 million acres of corn. That’s the lowest since 2001, and 5 percent fewer acres than in the 2005/2006 planting year— a significant decline.
Rising energy costs hit corn growers particularly hard in terms of higher fuel and fertilizer costs, and it’s the driving force behind the acreage shift. Those input costs are not likely to change anytime soon.
If acreage holds remotely close to those early planting intentions there will be little room for error. “It would not allow for any weather challenges for corn,” says Chris Hurt, Purdue University agricultural economist. “We’d almost need a perfect crop.”
Corn’s carryout stocks would drop from 2.4 billion bushels now, to 1.4 billion bushels, he adds. It could add another $1 to $2 per hundredweight to pork producers’ breakevens.
The farm price for corn could average $2.35 per bushel for the 2006/2007 marketing year, says Darrel Good, University of Illinois agricultural economist. All in all, you can expect corn prices to be quite volatile this growing season.
Consumption is truly the ominous factor. For the 2005/2006 marketing year, corn consumption is expected to reach 10.995 billion bushels. For the upcoming crop year, consumption could balloon to 11.5 billion bushels. At least a 10.4-billion-bushel corn crop is needed to hold an ending-stocks-to-use ratio at 10 percent, says Good. With acreage reductions and increased usage, the United States would need a 142-bushels-per-acre average yield to maintain the status quo.
“That yield appears modest in the context of average yields during the past two years, but it’s only about 5 percent below the trend yield for 2006,” notes Good.
There is still plenty of corn in storage, but domestic and export appetites are growing rapidly. For the year, USDA projects domestic processing use at 2.985 billion bushels, a 299-million-bushel, year-over-year increase.
“Most of the focus in corn has been on the expanding ethanol market and its implications on future price and production,” notes Good. The Western Corn Belt has led the effort aggressively, building numerous plants, with more on the drawing board. The Eastern Corn Belt is coming on strong, with at least nine facilities under construction or expansion.
To provide a perspective, Hurt points to Indiana where six new plants may be in production by 2008. “These will require the equivalent of 18 percent of the state’s current corn production,” he notes.
For this year, about 500 million more bushels of corn will be used for ethanol production than last year. “For the first time, ethanol production will pass exports as the second largest corn user,” says Matt Roberts, The Ohio State University agricultural economist.
Of course, the feed industry remains the largest corn user.
Domestically, beef, pork and poultry production are all exceeding year-ago levels, which means there are plenty of animals to feed. Broiler producers are the only ones who appear to be slowing that trend. Pork will increase 2 percent to 3 percent on the year, and set another record. Cattlemen have recently placed 8 percent more animals on feed. In terms of “feed and residual use,” Good is forecasting it at 6.06 billion bushels.
Last year was a slow one for U.S. corn exports, but this year is setting up to be a different story. So far, U.S. corn exports have been benefited from a shortfall in Argentina’s crop and by reduced competition (tariffs) from Chinese exports.
USDA is projecting U.S. corn exports for the current marketing year to be 1.95 billion bushels; it could move to 2.15 billion bushels in 2006/2007.
So, regardless of the market– domestic or export– the point is that more corn will be used and more corn will be needed. The question is, how will the competition shake out; and at what price? It’s sort of like interest rates — there is more upside potential for corn prices than downside potential.
Given that, John Lawrence, Iowa State University agricultural economist, says some level of price protection is warranted for pork producers. But he emphasizes that volatility in corn prices isn’t an issue just for this year, but “all points forward.”
“It is a new world on the corn marketing side,” says Lawrence. “There will be changes in the basis too. Producers will need to take a lesson in corn marketing, because it’s going to be very different.”
The Annual Balancing Act
Darrel Good, University of Illinois agricultural economist, pencils out a likely new-crop scenario. Figure total corn consumption at 11.55 billion bushels and assume carryover stocks near 1.2 billion bushels. That means the 2006/2007 crop needs to be at least 10.5 billion bushels, to maintain a comfort level.
To accomplish that with current projections at 78 million acres (of which 71.9 million is likely to be harvested) it would require a 146-bushels-per-acre average yield.
If yields average 143.2 bushels an acre, it would drop year-end stocks below 1 billion bushels. A 140.5-per-bushel yield would require consumption to be less than 11.55 billion bushels. If the crop comes in at 148 bushel per acre, it would produce 10.64 billion bushels of corn, leaving year-ending stocks at 1.34 billion bushels.
Here’s a look at past and possible future scenarios:
Intentions Versus Outcomes
USDA will release its next plantings report on June 30. While corn producers have changed intentions in the past, it’s usually ranged from 1.5 million acres to 1.9 million. The feeling is that 79 million corn acres could be planted this year.