A smaller U.S. corn crop in 2001 and the potential for dramatic increases in ethanol production could mean better corn prices in the months ahead.
After planting close to 80 million acres in most of the years since the passage of Freedom to Farm in 1996, U.S. producers seeded about 4 million fewer acres of corn last spring, primarily due to concerns about high fertilizer prices.
“We also had a wet spring that delayed some acres,” said Kurt M. Guidry, Extension marketing specialist with the LSU Ag Center in Baton Rouge, La. “The impact of the marketing loan and the ratio between corn and soybean loan rates also figured in.”
Speaking at the Southern Region Agricultural Outlook Conference in Atlanta earlier this fall, Guidry said that 2001 U.S. corn production is expected to be 730 million bushels lower than 2000's 9.97 billion bushels, which was the second largest crop on record behind 1994.
“We did see a dramatic decrease in acres resulting in only 9.24 billion bushels of corn production,” he said. “That's one of the positive developments in the feed grain outlook for the 2001/02 marketing year (May through April).”
Another is that 2001/02 world corn production is projected by USDA to be down 7.24 million metric tons from 2000/2001 and nearly 20 million metric tons from 1999/2000, primarily because of declines in estimates for China's production.
Total world coarse grain production — which includes corn, grain sorghum, barley and oats — is expected to be up 3.14 million metric tons, however.
Need more demand
If falling supplies were all it took, corn prices would be substantially higher, he noted. But farmers will need more help from the demand side before corn prices will rise significantly above the $1.75 to $2.15 per bushel range USDA forecasts for 2001/02.
“Exports are expected to increase by 35 million bushels in 2001/2002 from last year, but remember that 2000/2001 was no great shakes when it came to exports of corn,” said Guidry. The controversy over Starlink corn and mad cow and foot and mouth disease took their toll on corn exports, he noted.
“At first when you say exports are going to increase by 35 million bushels that sounds pretty good, but you have to remember where we were last year,” he said. (2000/01 exports totaled 1.94 billion bushels.)
Feed demand is expected to be down, declining from the previous marketing year's 5.85 billion bushels to 5.8 billion bushels due to decreases in animal numbers that are helping improve livestock prices. Food, seed and industrial use, on the other hand, is expected to increase 85 million bushels from 2000/01's 1.965 billion bushels.
Ethanol to help
“Ethanol production is providing one of the bright spots for corn demand,” said Guidry. “High energy costs, especially in California where the federal government has decreed refiners must add more ethanol to gasoline, are expected to lead to increases in ethanol production. Hopefully, that will pull off some more of that corn.”
Some analysts are projecting that ethanol production will nearly double between 2001 and 2005, he said. With the new ethanol plants coming on line as a result of the California decision and other factors, U.S. production could climb from 2.3 billion to 4.4 billion gallons by 2005.
Totaling the different categories of use, USDA projects the corn market will use 9.83 billion bushels or 595 million bushels more than producers grew in 2001. As a result, U.S. corn stocks could fall to 1.36 billion bushels for a stocks-to-use ratio of 13.85 percent.
“Ending stocks of 1.36 billion bushels would be the lowest since 1997/98,” said Guidry. “That would definitely help get these stocks down to a more manageable level.”
USDA estimates the 2001 U.S. grain sorghum crop will total 537 million bushels, up 67 million bushels from 2000 after growers increased their plantings from 9.2 million to 10 million acres in 2001.
“For 2000/01, grain sorghum prices averaged $1.88 per bushel, and corn prices averaged $1.85,” said Guidry. “You actually had grain sorghum prices higher than corn.” (Grain sorghum prices are normally 90 percent of corn prices, based on the difference in feed value.)
“So, you saw an increase in grain sorghum acres because of the higher prices and the relatively lower operating expense for grain sorghum. But we could see grain sorghum leveling off in the next couple of years if prices return to a more normal relationship.”
With total grain sorghum use remaining around 510 million to 515 million bushels, carryover stocks are expected to more than double (from 20 million to 48 million bushels). USDA projects a stocks-to-use ratio of 9.41 percent for 2001/02.
China as key
Much of what happens in the world corn market depends on whether production continues to decline in China, says Guidry. After increasing its grain production to reduce imports in the mid-1990s, China's corn output has been on a downhill slope since 1998/99.
As a result China's corn exports have declined from more than 100 million metric tons in 1999/00 to an estimated 40 million metric tons in 2001/02. As China's ending stocks have fallen, so, too, have world stocks, dropping from about 155 million metric tons in 2000/01 to about 125 million metric tons in 2001/02.
“Hopefully, that will reduce some of the competition we've been seeing from China in the world market and allow the U.S. to increase its share,” Guidry notes.