That question is surfacing more frequently as the reality of last week’s USDA World Supply and Demand Estimate sinks deeper in to producers’ and the market’s psyche. Of course, price will ration corn, but things could get pretty painful in the process.
With USDA dropping its yield estimate to 153 bushels per acre, and its 2011/2012 ending stocks now pegged at 714 million bushels, next year’s corn outlook is even tighter than this year’s; and this year’s supplies have caused plenty of ulcers.
While the corn growing season is winding down and the impact of the cool, wet spring, followed by the massive “heat dome” that hit the U.S. midsection during the July pollination period has yet to be seen. Other areas continue to deal with drought. Recent conversations suggest the crop looks good—from the road—but the ears are 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.
The final harvested acreage might offer yet another concern. The ratio of harvested to planted acres is now pegged at 91.4 percent; last year the final was 92 percent. Being from the north, I always worry about early frost. Minnesota is one state where this year’s corn crop has fared well, but an early nip in the air would be problematic.
While feed usage by livestock, dairy and poultry producers has declined in recent months. USDA is counting on them to cut demand further. In the end, USDA projects feed usage at 4.9 billion bushels, down 100 million bushels from last year’s level. As Steve Meyer and Len Steiner, authors of CME Group’s Daily Livestock Report, point out, “If USDA is right, current feed-use estimates imply further contraction in U.S. protein supplies in 2012.”
We know that the beef cattle herd is shrinking. Poultry producers are cutting back, but they can turn production on a dime. Pork producers will likely hold steady unless corn prices skyrocket further, the pork export market softens or lenders pull back.
In a recent conversation, a pork producer admitted to having no expansion plans unless corn drops back to $5 or $6 a bushel. Remember when even hints of $4-corn would temper expansion plans?
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, some believe lower crude prices could actually increase corn demand for ethanol as lower fuel prices will eventually increase use. But the reality remains, since production levels are mandated there’s not much wiggle room. Just this summer, ethanol production surpassed farm animals as the nation’s No. 1 corn consumer.
Then there are corn exports, which in the Aug. 18 report, USDA showed net sales at 243,500 metric tons for the 2010/2011 marketing year, down 45 percent from last week and 35 percent below the 4-week average.
But foreign buyers have few options, and depending on the dollar’s trend, those sales will pick up when buying opportunities arise.
Of course, corn consumption cuts will have to come from a combination of users. Savvy pork producers don’t need anyone to tell them that filling actual feed-grain needs into 2012 is not something to ignore. This year, harvest time may not offer price relief that you’ve grown accustomed to in past years.
From the broader view, discussions about feed contingency plans will likely surface again as USDA has said “no” to releasing non-sensitive Conservation Reserve Program acres. Perhaps the agency’s own numbers and the strengthening dose of reality that’s coming with increased domestic and global corn use will change that thinking.
Regardless, climbing out of this corn shortfall is going to take a few very good crop years, and we haven’t started that climb yet.