–Corn production forecast virtually unchanged.

–Sorghum crop forecast raised 4 percent.

–Projected 1997/98 ending stocks of corn up 17 million bushels.

–Projected 1997/98 corn exports reduced 25 million bushels.

The forecast of U.S. feed grain production is up slightly, as an increase in sorghum outweighs small declines in corn and barley. Feed grain production is forecast at 263 million metric tons, up 400,000 tons from last month. There was a small decline in prospective feed grain use, mainly due to lower expected corn exports. Forecast use of sorghum is up because of small increases in feed and residual and exports, while an increase in forecast barley exports is offset by reduced feed and residual.

Compared with 1996/97, feed grain production is forecast to drop more than 4 million tons. This is more than offset by larger forecast carryin stocks, however, and feed grain supplies are up nearly 10 million tons. Nevertheless, the 1997/98 outlook is relatively tight because of strong prospective demand. Solid gains are expected in both domestic use and exports, and ending stocks are projected to fall 8 percent.

While the barley and oats harvests are nearly complete, a bit ahead of the average pace, the bulk of the corn harvest has not yet begun. About a fifth of the sorghum crop had been harvested by early September, in line with the historical average.

The forecast of 1997 corn production is down 8 million bushels from last month to 9,268 million bushels, and down only marginally from last year. Based on conditions as of September 1, yields are expected to average 125.2 bushels per acre, down 0.1 bushel from last month, and 1.9 bushels from 1996. There were few changes among the individual States this month. In the seven States where objective yield surveys are taken, a record stalk count is indicated. However, ear lengths are smaller than average, holding down potential yields.

After a very promising start to the season, crop conditions generally deteriorated from early July through the middle of August. Rains in the last few weeks brought relief to some dry areas, but they were frequently spotty in coverage, and, in some cases, were too late to make that great a difference. Harvesting in the major Corn Belt growing areas is expected to start in the later half of September.

Despite reduced crop expectations, the crop is still forecast to be the fourth largest ever. There appears to be potential for yield forecasts to move either way as the harvest progresses. Given moderately tight supplies, the market will remain sensitive to forecasts until the harvest is done. A 2-bushel change in the average yield would result in a change of about 150 million bushels this year.

A 25- million-bushel reduction in the corn export forecast and the 8- million-bushel cut in production account for an increase in 1997/98 ending stocks to 864 million bushels. Even with the decline in the export forecast, total use of corn is projected to be large at 9,355 million bushels. This is only about 50 million bushels less than the 1994/95 record. Projected stocks remain low, and the ratio of stocks to use is projected at 9.2 percent, down from the 10.7 percent expected in 1996/97.

The forecasts of season average prices received by farmers were reduced 5 cents for each feed grain this month. This largely reflects early season weakness in the corn price, stemming from sluggish export sales. The farm corn price is forecast at $2.45-2.85 per bushel in 1997/98. The midpoint of the forecast is slightly below the 1996/97 price despite a slightly tighter outlook. This is because the 1996/97 average was pulled up by very high prices at the onset of the marketing year before supplies were replenished. In addition to the strong influence of corn on the other feed grains, average barley prices in 1997/98 are expected to be slightly weaker on expectations of a smaller proportion of barley sold for malting.

Many buyers in Asian markets have been purchasing corn from China in recent weeks, and there is little urgency to buy from the United States. Sales typically peak during the early fall as importers attempt to hit harvest time lows in prices. Corn prices could strengthen considerably if and when China halts export sales. After approaching a high close to $2.80 per bushel in late August, futures prices for corn have been mostly running around $2.70 per bushel recently. Cash prices have been relatively steady over the last month, with Central Illinois corn prices in the $2.60-2.70 range.

Foreign coarse grain production in 1997/98 is forecast at 619 million tons, up 6 million from last month, but almost 17 million tons below a year earlier. Preliminary harvest reports boosted barley production in the EU, Eastern Europe, and Russia. The same regions of Europe had favorable growing conditions for corn, raising production prospects. In Eastern Europe, especially Romania, increased production boosted projected exports.

Increased corn, barley, and feed wheat production in Europe may provide competition for U.S. corn. Heavy rain during wheat harvests in some regions from the U.K. to Ukraine will boost the amount of wheat in Europe that is not of milling quality. However, it is unclear how much will be exported or consumed internally or stocked.

Forecast 1997/98 U.S. corn exports declined 25 million bushels this month to 2,025 million. The decrease was caused by increased corn exports from China and Eastern Europe. For China, the pace of shipments boosted the 1996/97 export forecast 750,000 tons to 3.5 million, and the forecast for 1997/98 was raised 500,000 tons to 1.5 million, despite poor prospects for China's new crop.

U.S. corn exports are expected to post a strong 13 percent year-to-year gain in 1997/98 because of less competition from other exporters. Along with China, Argentina and South Africa, normally the major foreign corn exporters, are also expected to have reduced supplies in 1997/98. Production prospects are down based on reduced area, but the Southern Hemisphere crops are produced late in the year, so trend yields are assumed.

The expected increase in U.S. corn exports is based on supply and demand fundamentals, not on the pace of pre-season sales. At the start of the year, on September 4, according to U.S. export sales, outstanding sales were 7.7 million tons, about half of a year ago, when early sales were unusually high. Contributing to the slower start this year are more early season competition and less concern on the part of importers about supply availability. Last summer, U.S. corn supplies were critically tight because of the short 1995 crop. Prices were high, and importers were worried that not enough corn would be available, so they purchased more in advance than usual. It is more reasonable to compare this year's early sales to the 1990-94 average of 7.5 million tons than to last year's exceptional sales. Moreover, this year, China and Argentina have been marketing old-crop supplies during the summer, cutting into advance sales of U.S. corn. However, this competition is expected to wane as old-crop supplies are used up, and U.S. export sales are expected to increase.

China's 1997/98 corn production has been hit by drought in many major producing areas. High temperatures, especially in mid-July, have also harmed the crop. While the production forecast is unchanged this month at 110 million tons, it is down 13 percent from a year ago. China has a key role in world corn markets, both as an exporter and importer. For example, in 1993/94 China exported 12 million tons, and then in the next year imported 4 million. In 1996/97 China produced a bumper crop of 127 million tons, pumped up exports, and built up huge stocks.

China's corn supplies in 1997/98 are projected at 151 million tons, down from last year, but above any other year. China has continued to sell old-crop stocks for export in 1997/98, even though production losses are verified, because large supplies remain in Northern China. Moreover, the corn being exported was reportedly purchased as early as 1995, at relatively low procurement prices. Although domestic market prices have recently increased, China's old-crop supplies remain competitively priced in export markets.

September 15, 1997 Economic Research Service

USDA, Washington, D.C.

Consensus National Futures and Financial On Line Index

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