CORN: USDA REPORTS FAIL TO CONFIRM SMALLER SUPPLIES

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1 CORN: USDA REPORTS FAIL TO CONFIRM SMALLER SUPPLIES JANUARY 2001 Darrel Good No. 1 Summary Corn prices managed a significant rally from late September to late December 2000, partially on anticipation of a smaller 2000 crop estimate and record first quarter feed and residual use of corn. The USDA reports released on January 11 did not support the anticipation of declining U.S. stocks by the end of the marketing year. At billion bushels, the final 2000 production estimate was only 86 million bushels below the November estimate. December 1, 2000 stocks of 8.5 billion bushels were at least 100 million bushels larger than expected and were the largest since Stocks at the end of the year are now projected to increase from the level of a year ago. Corn exports have started slowly in the marketing year. The market will watch Chinese sales and Japanese purchases closely for signs of recovery in demand for U.S. corn. Unless exports expand dramatically, prices will remain weak into spring. Many in the trade expect U.S. producers to reduce corn acreage in The USDA will release a Prospective Plantings report on March 30. If, as we expect, that report shows only a small decline in acreage, spring prices will reflect planting conditions. It now seems that only weather concerns in the U.S. can generate any significant price strength. Final 2000 Production Estimate The final estimate of the 2000 U.S. corn harvest came in a billion bushels, 537 million larger than the 1999 crop (Table 1). The estimated size of the crop was reduced each month from September 2000 through January 2001, with the final estimate 401 million bushels (3.9 percent) smaller than the August 2000 estimate. The declining production estimates generally reflected declining yield prospects, with the final yield estimate of bushels per acre falling 4.8 bushels (3.4 percent) below the August estimate (Table 2). The 2000 average yield was the second largest ever, 1.5 bushels below the 1994 record. Harvested acreage of corn for grain was estimated at million acres in 2000, 277,000 below the early estimate, but at the highest level (by a small margin) since 1985 (Table 3). Among the 10 largest corn producing states, the highest average yield was 151 bushels per acre in Illinois. The average yield was 147 bushels in Indiana and Ohio and 145 bushels in Iowa and Minnesota. The largest year over year increase in yield (46 bushels) came in Missouri. The final production estimate for the 2000 crop was very close to the average market guess, but larger than the estimates made by some prominent private forecasters. As a result, the final estimate was generally considered somewhat negative for near term price prospects. Domestic Feed and Residual Use Falls Short of Expectations Based on the large number of cattle on feed during the September through November 2000 period; the larger fall 2000 pig crop; expanding broiler production; and a 21 percent cut in the sorghum crop in 2000, the market had expected the December 1, 2000 corn stocks figure to reflect a substantial increase in feed and residual use of corn during the first quarter of the

2 marketing year. A December 1 stocks figure of billion bushels implies use of corn for all purposes during the first quarter of the year of 3.17 billion bushels (Table 4). With exports and processing use estimated at 973 million bushels, feed and residual use during the quarter is estimated at 2.2 billion bushels. That is a large level of use, but only 9 million more than used during the same quarter last year and well below expectations. Part of the shortfall may be explained by increased feeding of wheat during the fall quarter of Feed and residual use of corn for the remainder of the marketing year should be supported by increased pork and broiler production. Over the next 9 months, the USDA projects a year-over-year increase of 2 percent in pork production and a 2.6 percent increase in broiler production. Higher prices of wheat and smaller sorghum supplies along with generally low grain prices, should also support feed use of corn. The trend towards fewer numbers of cattle on feed will moderate the expansion in use. If use for the December 2000 through August 2001 time period exceeds that of last year by 3 percent, use for the year will be near 5.76 billion bushels (Table 5). That is nearly 100 million bushels more than was used in that category in the marketing year, but slightly less than the billion currently projected by the USDA. Consistent with the long term trend increase in domestic use of corn for seed, food and industrial purposes, use in that category is projected at billion bushels. At that level, use would be about 50 million bushels larger than during the marketing year (Table 5). Exports Lagging Last Year s Pace For the current marketing year, the USDA projects exports of U.S. corn at 2.15 billion bushels. That projection is 213 million larger than last year s shipments, but 50 million less than projected in December and 125 million less than projected in November Exports during the first quarter of the marketing year totaled 505 million bushels, 29 million less than during the same quarter last year. Since December 1, 2000, however, exports have fallen further behind last year s pace. Based on the USDA s weekly report of export inspections, shipments during the first 19 weeks of the current marketing year (September 1, 2000 through January 11, 2001) totaled 665 million bushels, about 10 percent (75 million bushels) less than during the same period last year. The largest decline has been in shipments to South Korea, down 55 percent from shipments of a year ago. Shipments to Japan and Taiwan were down 17 percent and 8 percent, respectively. Of our major customers, only Mexico had received more corn (13 percent) than in the same period last year. Outstanding export sales as of January 11, 2001 stood at 234 million bushels, 21 percent less than on the same date last year. Unshipped sales were behind last year s level primarily for South Korea (down 68 percent) and Japan (down 33 percent). Shipments plus outstanding sales are about 140 million bushels less than at the same time last year. Sales to South Korea continue to lag due to the availability of Chinese corn. The 2000 Chinese corn crop is estimated at 4.1 billion bushels, about 900 million smaller than the 1999 harvest. Chinese exports for the year, however, are expected to decline only 230 million bushels as internal stocks decline. Sales to Japan have been slowed by concerns over StarLink in the supply chain. To reach the USDA projection for the year, corn exports during the last 33 weeks of the marketing year need to average 45 million bushels per week. That is about 10 million more than the average during the first 19 weeks of the year and about 11 million more than during the same 33 weeks last year. The key to reaching the USDA export projection will be Chinese export policy and the rate of Japanese purchases. The large jump in Brazilian corn production (200 million bushels) may provide Japan an alternative for some U.S. corn late in the marketing year (Table 6). At this juncture, it appears unlikely that exports will reach the USDA projection. We are using a projection of 2.10 billion (Table 5). U.S. Stocks to Increase Based on the projections developed here, stocks of U.S. corn at the end of the current marketing year are projected at 1.87 billion bushels, 153 million more than stocks at the beginning of the year and the largest year ending inventory in 9 years. The projected level of stocks represents 19 percent of projected consumption, up from 18 percent at the end of the marketing year.

3 The only other country that holds large year-end inventories is China. Those stocks are expected to decline sharply due to the shortfall in production last year. Prospective Plantings for 2001 Historically, planted acreage of corn has varied significantly from year to year (Table 3), primarily in response to government programs. The last annual set-aside program was in Since then, acreage has been very stable, except for the decline in The decline that year came primarily in the western corn belt (Table 7) as a reaction to sub-loan rate prices and the relatively high loan rate for soybeans. The largest increases in corn acreage in 2000 came in South Dakota and Illinois. One of the more interesting questions over the next six weeks will be How will U.S. corn producers respond to the higher nitrogen prices in 2001? The combination of higher prices and expected lack of availability of nitrogen fertilizer this spring has many analysts penciling in a one to three million acre reduction in corn plantings this spring, as producers choose to increase acreage of lower cost crops such as soybeans. If nitrogen supplies are available, even at current very high prices, producers are more likely to respond by reducing nitrogen rates per acre rather than reducing corn acreage. This is particularly true if the price for the 2001 corn crop remains high. In addition to nitrogen prices, the price of corn at planting time and spring weather conditions will influence planting decisions. High nitrogen prices of 1996 and 1997 had little impact on corn acreage. Prospects for corn acreage, as well as acreage of sorghum, are also clouded by the implications of a two million acreage reduction in winter wheat seedings, primarily in Texas and Oklahoma, but also in Colorado and Montana. If wheat prices continue to increase, spring wheat producers may respond with more wheat acres at the expense of feed grains and/or oilseeds. If wheat prices do not increase, acreage of both soybeans and feed grains could increase to fill the two million acre reduction in winter wheat acreage. At this juncture we would anticipate 2001 corn acreage of about 78.8 million, 745,000 less than planted in Confidence in that projection is fairly low. If 78.8 million acres are planted, about 72.0 million would be harvested for grain under normal weather conditions. The 2001 U.S. average yield is difficult to anticipate. Reduced rates of nitrogen fertilizer, particularly if most is spring applied (pre-plant or side dressed), would have little impact on the U.S. average yield under good growing conditions. The current neutral El Nino/La Nina weather pattern along with generally favorable subsoil moisture conditions supports expectations of a trend yield, or higher, in An average yield of 140 bushels would produce a crop of about 10.1 billion bushels. Assuming abundant supplies of U.S. corn, a rebound in Chinese production, and a recovery in Japanese exports, a market of about billion bushels of U.S. corn would be expected in Assuming that stocks could be comfortably reduced to 1.6 billion bushels, the 2001 crop would have to be smaller than 9.83 billion bushels to generate much price reaction. For prices to average above $2.50, supplies would have to be small enough to require some rationing of use and a reduction in year ending stocks to about 1.3 billion bushels. That is, for prices to average above what the market is currently offering for the 2001 crop would require a crop of less than 9.53 billion bushels. Price Prospects The average monthly price of corn in central Illinois during the marketing year has been as follows: Month Price ($/bu) Sept $1.58 Oct Nov Dec The lowest price of $1.51 was reached on September 19 and the highest price of $2.105 was reached on December 29. The price stood at $1.965 on January 18. The range from high to low ($.595) is within the experience of the last 27 years, although at the low end of that range. Over that 27 year period, the highest price has never occurred in December, which is the case so far this year.

4 Market fundamentals suggest that prices will remain under some pressure in the near term, particularly if exports continue to lag. The outlook could change by spring, however. It is too early to have confidence in acreage, yield, and production forecasts so that the anticipation of a 10.1 billion bushel crop may be premature. History would suggest that the highest price of the year will likely occur in May, June, or July. Now that there has already been nearly a $.60 range in cash prices, history provides little indication of how high the spring high could be. At this juncture, we expect some decline in acreage and weather scares to push the central Illinois cash bid to the $2.25 to $2.30 level. Accelerating exports, a large acreage cut, or real weather problems would be required to generate higher prices. New crop prices are currently about $.44 higher than old crop prices. A significant reduction in supply and/or improvement in demand will be required to sustain prices at that level. The premium is expected to persist until the market is satisfied that the 2001 crop will be large. Confirmation of reduced acreage and/or spring weather concerns could push new crop prices even higher. Last year s high just above $2.70 is a first target. Some patience in pricing new crop corn appears warranted. The market may move higher prior to planting to attract acreage. Issued by Darrel Good Extension Economist University of Illinois

5 Table 1. United States Corn Production Estimates million bushels July 7,116 5,200 August 7,735 8,315 5,237 7,668 8,266 8,316 7,231 4,479 7,348 7,850 7,418 8,762 7,423 9,214 8,122 8,695 9,276 9,592 9,561 10,369 September 7,940 8,319 4,390 7,552 8,469 8,268 7,141 4,462 7,321 8,118 7,295 8,770 7,229 9,257 7,832 8,804 9,268 9,738 9,381 10,362 October 8,081 8,315 4,259 7,498 8,603 8,220 7,139 4,553 7,449 8,022 7,479 8,938 6,962 9,602 7,541 9,012 9,312 9,743 9,467 10,192 November 8,097 8,330 4,121 7,527 8,717 8,223 7,166 4,671 7,590 7,935 7,479 9,329 6,503 10,010 7,374 9,265 9,359 9,836 9,537 10,054 January 8,201 8,397 4,204 7,656 8,865 8,253 7,064 4,921 7,527 7,933 7,474 9,479 6,344 10,103 7,374 9,293 9,366 9,761 9,437 9,968 FINAL 8,119 8,235 4,174 7,672 8,875 8,226 7,131 4,929 7,532 7,934 7,475 9,477 6,338 10,051 7,400 9,233 9,207 9,759 9,431

6 Table 2. United States Corn Yield Estimates bushels per acre July August September October November January FINAL

7 Table 3. United States Corn Planting Intentions, Actual Plantings, and Acres Harvested Planted Acreage Year February/January Intentions March Intentions June Intentions Actual Harvested Acreage thousand acres ,822 82,727 84,092 84,588 71, ,526 83,923 82,735 84,328 71, ,944 80,237 78,717 81,675 71, ,676 79,209 79,751 81,394 72, ,131 82,022 83,478 84,043 72, ,977 84,677 84,097 74, ,735 82,129 81,857 72, ,569 a 58,812 60,129 60,217 51, ,766 79,940 80,617 71, ,021 83,217 83,398 75, ,066 76,646 76,580 68, ,556 66,024 66,200 59, ,926 67,519 67,717 58, ,253 72,790 72,322 64, ,804 74,574 74,166 66, ,500 76,124 75,909 75,957 68, ,007 79,335 79,311 72, ,486 74,259 73,239 62, ,625 78,767 78,921 72, ,323 72,800 71,479 65, ,920 80,355 79,229 72, ,416 80,227 79,537 72, ,781 80,798 80,165 72, ,219 77,611 77,386 70, ,881 79,579 79,545 (72,732) a February

8 Table 4. Corn Quarterly Balance Sheet million pounds September 1 stocks 1,392 2,537 3,523 1,006 1,648 4,040 4,882 4,259 1,930 1,344 1,521 1,100 2, , ,308 1,787 1,718 Production 8,119 8,235 4,174 7,672 8,875 8,226 7,131 4,929 7,532 7,934 7,475 9,477 6,338 10,051 7,400 9,233 9,207 9,759 9,431 9,968 TOTAL a 9,511 10,772 7,699 8,680 10,534 12,267 12,016 9,191 9,464 9,282 9,016 10,584 8,472 10,910 8,974 9,672 10,099 11,085 11,232 11,696 September-November Seed, food, ind Export Feed, residual 1,218 1,215 1,326 1,301 1,219 1,348 1,551 1,344 1,487 1,619 1,673 1,814 1,701 1,963 1,778 1,885 2,030 2,118 2,189 2,198 TOTAL 1,910 1,866 2,046 2,048 1,910 1,961 2,243 2,117 2,381 2,339 2,455 2,672 2,519 2,822 2,856 2,759 2,845 3,018 3,182 3,171 December 1 stocks 7,601 8,906 5,652 6,631 8,615 10,305 9,771 7,072 7,082 6,940 6,547 7,906 5,937 8,080 6,106 6,903 7,247 8,052 8,039 8,518 Seed, food, ind Export Feed, residual 1,199 1,305 1,069 1,192 1,306 1,463 1,444 1,065 1,276 1,351 1,267 1,401 1,240 1,492 1,344 1,486 1,503 1,460 1,526 TOTAL 1,835 2,007 1,787 2,008 2,028 2,057 2,137 1,868 2,271 2,152 1,991 2,229 1,949 2,493 2,311 2,411 2,308 2,359 2,426 March 1 stocks 5,766 6,899 3,865 4,623 6,587 8,248 7,636 5,204 4,812 4,789 4,561 5,678 3,996 5,592 3,800 4,494 4,940 5,698 5,602 Seed, food, ind Export Feed, residual 1,089 1, ,019 1,091 1, ,042 1, ,159 1,044 1,097 1,084 1,097 1,059 TOTAL 1,886 1,975 1,720 1,788 1,599 1,917 1,798 1,786 1,970 1,798 1,828 1,971 1,642 2,180 2,087 2,001 1,904 2,089 2,022 June 1 stocks 3,880 4,924 2,145 2,836 4,990 6,332 5,839 3,419 2,843 2,992 2,739 3,709 2,360 3,415 1,718 2,497 3,040 3,616 3,586 Seed, food, ind Export Feed, residual TOTAL 1,344 1,401 1,139 1, ,450 1,580 1,489 1,499 1,472 1,642 1,599 1,511 1,858 1,295 1,617 1,734 1,831 1,873 September 1 stocks 2,537 3,523 1,006 1,648 4,040 4,882 4,259 1,930 1,344 1,521 1,100 2, , ,308 1,787 1,718 Annual Seed, food, ind ,067 1,152 1,233 1,251 1,298 1,370 1,425 1,533 1,556 1,613 1,715 1,628 1,714 1,805 1,846 1,913 Export 1,997 1,821 1,887 1,850 1,227 1,492 1,716 2,029 2,367 1,727 1,584 1,663 1,328 2,177 2,228 1,797 1,504 1,981 1,937 Feed, residual 4,245 4,573 3,876 4,115 4,114 4,660 4,789 3,934 4,382 4,609 4,798 5,252 4,680 5,460 4,693 5,277 5,482 5,471 5,664 TOTAL 6,975 7,249 6,693 7,032 6,494 7,385 7,757 7,260 8,120 7,761 7,916 8,471 7,622 9,352 8,548 8,789 8,791 9,298 9,524 a Includes imports for the entire year.

9 Table 5. Corn Annual Balance Sheet a a million bushels Carryin 1,930 1,344 1,521 1,100 2, , ,308 1,787 1,718 1,871 Production 7,532 7,934 7,475 9,477 6,338 10,051 7,400 9,233 9,207 9,759 9,431 9,968 10,080 TOTAL b 9,464 9,282 9,016 10,584 8,472 10,910 8,974 9,672 10,099 11,085 11,232 11,696 11,961 Seed, food, industrial 1,370 1,425 1,533 1,556 1,613 1,715 1,628 1,714 1,805 1,846 1,913 1,965 2,010 Export 2,367 1,727 1,584 1,663 1,328 2,177 2,228 1,797 1,504 1,981 1,937 2,100 2,250 Feed and residual 4,382 4,609 4,798 5,252 4,680 5,460 4,693 5,277 5,482 5,471 5,664 5,760 5,850 TOTAL 8,120 7,761 7,915 8,471 7,621 9,352 8,548 8,789 8,791 9,298 9,515 9,825 10,110 Carryout 1,344 1,521 1,100 2, , ,308 1,787 1,718 1,871 1,851 U.S. average price $2.36 $2.28 $2.37 $2.07 $2.50 $2.26 $3.24 $2.71 $2.45 $1.94 $1.82 $1.80 $1.80 a Projected b Includes imports

10 Table 6. World Coarse Grain Production million metric tons United States Former USSR Western Europe China Eastern Europe Canada India Brazil Argentina South Africa World Excluding the U.S Source: USDA, FAS, World Crop Production, Jan and earlier issues.

11 Table 7. Planted Acreage of Corn by State State thousand acres Georgia Illinois 10,600 11,200 11,200 10,590 11,600 10,200 11,000 11,200 10,600 10,800 11,200 Indiana 5,600 5,700 6,100 5,550 6,100 5,400 5,600 5,900 5,800 5,800 5,700 Iowa12,800 12,500 13,200 12,000 13,000 11,700 12,700 12,200 12,500 12,100 12,300 Kansas 1,600 1,800 1,850 2,000 2,280 2,150 2,500 2,750 3,000 3,150 3,450 Kentucky 1,350 1,400 1,420 1,370 1,350 1,280 1,300 1,270 1,300 1,320 1,330 Michigan 2,400 2,600 2,700 2,500 2,550 2,450 2,650 2,500 2,300 2,200 2,200 Minnesota6,700 6,600 7,200 6,300 7,000 6,700 7,500 7,000 7,300 7,100 7,100 Missouri 2,100 2,300 2,500 2,200 2,400 1,650 2,750 2,700 2,650 2,650 2,850 Nebraska 7,700 8,200 8,300 8,000 8,600 8,000 8,500 8,900 8,800 8,600 8,500 North Carolina 1,200 1,050 1,150 1,000 1, , Ohio 3,700 3,700 3,800 3,500 3,700 3,300 2,900 3,800 3,550 3,450 3,550 Pennsylvania 1,380 1,400 1,380 1,370 1,400 1,380 1,450 1,550 1,550 1,500 1,550 South Dakota 3,400 3,750 3,800 3,350 3,800 2,800 4,000 3,800 3,900 3,600 4,300 Tennessee Texas 1,650 1,700 1,750 2,000 2,150 2,100 2,100 2,000 2,400 1,950 2,100 Wisconsin 3,700 3,800 3,900 3,400 3,750 3,650 3,900 3,850 3,700 3,600 3,500 United States 74,171 75,951 79,325 73,323 79,158 71,245 79,487 79,537 80,165 77,386 79,545