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CORN: USDA REPORTS FAIL TO CONFIRM SMALLER SUPPLIES
Prepared at University of Illinois
Summary
(January, 2001) 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 9.968 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 1987. 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 2000-01 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 2001. 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 9.968 billion bushels, 537 million larger than the 1999 crop. 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 137.1 bushels per acre falling 4.8 bushels (3.4 percent) below the August estimate. 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 72.732 million acres in 2000, 277,000 below the early estimate, but at the highest level (by a small margin) since 1985.
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 some- what 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 2000-01 marketing year. A December 1 stocks figure of 8.518 billion bushels implies use of corn for all purposes during the first quarter of the year of 3.17 billion bushels. 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 2000. Feed and residual use of corn for the remainder of the 2000-01 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. That is nearly 100 million bushels more than was used in that category in the 1999-00 marketing year, but slightly less than the 5.775 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 1.965 billion bushels. At that level, use would be about 50 million bushels larger than during the 1999-00 marketing year.
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 2000.
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 2000-01 marketing year. At this juncture, it appears unlikely that exports will reach the USDA projection. We are using a projection of 2.10 billion.
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 1999-00 marketing year. 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, primarily in response to government programs. The last annual set-aside program was in 1995. Since then, acreage has been very stable, except for the decline in 1999. The decline that year came primarily in the western Corn Belt 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 2000. 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 2001. 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 10.11 billion bushels of U.S. corn would be expected in 2001-02. 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 $2.50, supplies would have to be small enough to require some rationing of use and a reduction in year ending stocks to about 1.3 billion bushels. That is, for prices to average above what the market is currently offering for the 2001 crop would require a crop of less than 9.53 billion bushels.
Price Prospects
The average monthly price of corn in central Illinois during the 2000-01 marketing year has been as follows:
Month Price ($/bu) Sept. 1999 $1.58 Oct. 1.80 Nov. 1.96 Dec. 2.01 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.
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.
January, 2001 Darrel Good, Extension Economist Cooperative Extension Service, USDA University of Illinois, Urbana, Illinois 217-333-4716
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