–Corn crop forecast up slightly from last month and last year.

–Sorghum production inches up, small reductions in barley and oats.

–Higher than expected use in last quarter trims 1996/97 corn stocks.

–Forecast of corn feed and residual use raised for 1997/98.

The outlook for U.S. feed grains in 1997/98 has tightened despite a small increase in the production forecast this month. Supplies are down slightly as a reduction in beginning stocks outweighs the gain in production. In addition, feed grain use is up due to higher prospective feed and residual use of corn and sorghum, and higher exports of barley. As a result, feed grain ending stocks are projected down about 2 million metric tons from a month ago.

Modest increases in the production forecasts of corn and sorghum more than offset small reductions in the barley and oats crop estimates. Feed grain production is forecast at 264.1 million metric tons, up 1.1 million from last month, but 3 million tons below 1996/97. Even with this month's cut in beginning stocks, feed grain supplies in 1997/98 are still expected to be 9 million tons greater than the year before. However, total feed grain use is projected to be 12 million tons higher than in 1996/97 at a near-record 269.7 million tons. Ending stocks of feed grains are now projected at 24.3 million tons in 1997/98, down from 27 million in 1996/97.

Based on conditions as of October 1, the U.S. corn crop in 1997 is forecast at 9,312 million bushels, up 44 million from last month and 18 million above last year. The average yield is forecast at 125.8 bushels per acre, up 0.6 bushel from a month ago, but 1.3 bushels lower than 1996. A handful of States, including Illinois, Missouri, Kentucky, and Michigan, accounted for this month's increase. There were slight reductions for Indiana, Wisconsin, and Nebraska.

Conditions in September and early October across the Corn Belt were very favorable for the maturing corn crop, and there were no major frost problems. Initial harvest results have been quite variable, however, reflecting the variability in growing conditions at critical times earlier in the summer. Nationally, 15 percent of the crop was harvested by October 5, but most of this was in the southern States. In the major producing areas of the Midwest, little corn was harvested as farmers concentrated on harvesting soybeans first, in part to try to capture market premiums for early soybeans.

Total use of corn is projected at 9,425 million bushels in 1997/98, up 70 million from the month before due to higher feed and residual use. If realized, this would eclipse the old record of 9,405 million bushels set in 1994/95. Feed and residual use of corn is forecast at a record 5,625 million bushels, up 75 million because of the strong pace of use in the last quarter of 1996/97 and reductions in the prospective feeding of barley and oats. There were no changes in the U.S. corn export forecast this month. China's export sales and shipments in the next few weeks continue to be a source of uncertainty in the export outlook (see discussion below).

With a lower carryin and higher use more than offsetting the increase in forecast production, carryout stocks are projected at 781 million bushels, down 83 million from last month.

Corn stocks as of September 1, 1997, were reported at 884 million bushels. Stocks held on farms were 475 million bushels, or 54 percent of the total, while off- farm stocks were 409 million. Both were up sharply from the depressed position a year earlier.

Corn disappearance in the 1996/97 marketing year is estimated at 8,848 million bushels, up from previous expectations because of stronger feed and residual use in the summer months. Disappearance for the June-August quarter was 1,616 million bushels, the third highest after 1994/95 and 1991/92. This was also up sharply from the 1,295 million of June- August 1995/96, when short supplies and record prices constrained corn use.

While corn exports declined markedly in 1996/97, both food, seed, and industrial (FSI) use and feed and residual use rebounded from the year before. The breakout among use categories is subject to slight changes, pending the release of final trade data for August and some final estimates for certain industrial uses.

The food, seed, and industrial (FSI) use of corn in 1997/98 is forecast at 1,775 million bushels, up from 1,690 million in 1996/97. There were only minor adjustments in these estimates this month. FSI use at this level would represent 17 percent of all corn used in 1997/98, the same percentage as in 1996/97, but down 1 percent from 1995/96. In first-quarter 1996/97, ethanol producers did not get back up to year earlier production because of relatively high corn prices and the process of restarting processing plants. As a result, some areas that would have used ethanol to blend for the winter oxygenate season, used competing oxygenates instead. This summer, corn was available to produce ethanol. Ethanol producers have increased stocks and contracted with gasoline producers and blenders to provide ethanol for the winter oxygenate season. Thus corn used for ethanol production in 1997/98 is expected to total 475 million bushels, up from 427 million in 1996/97.

Corn used in wet-mill operations in 1997/98 is expected to be up nearly 3 percent from the 977 million bushels used in 1996/97. High fructose corn syrup (HFCS) may be up 4 percent from 1996/97. Unlike 1996/97, when corn use was up 5 percent because of new plant construction and HFCS prices were forced down by increased supplies, new plant construction that would boost corn use is not expected in 1997/98. Another complicating factor in the HFCS market is the increased tariffs imposed by Mexico that may limit exports in 1997/98. Increased demand for glucose and dextrose is anticipated and corn use may expand 3 percent from 1996/97's expected 243 million bushels. In 1997/98, starch production is expected to increase corn use 3 percent as the economy stays strong and industrial uses of starch remain strong. In 1996/97, corn used for starch production totaled 229 million bushels, up 4 percent from 1995/96 when high prices and tight corn supplies slowed starch use.

Feed and residual use of the four feed grains plus wheat in 1997/98 is expected to increase 2 percent from the expected 166 million metric tons used in September 1996- August 1997. Feed and residual use in 1996/97 was up 18 percent from the year earlier when the short 1995 corn crop boosted prices and forced feeders to cut back. Corn, which accounted for 85 percent of feed and residual use in 1995/96, represented 82 percent of feed and residual use in 1996/97 and is expected to account for 85 percent in 1997/98.

The index of grain consuming animal units (GCAU's) for 1997/98 is expected to be up 3 percent from 1996/97's 85 million units. The grain used per GCAU in 1997/98 would be 1.92 tons, down 1 percent from 1996/97, and up from 1.7 tons in 1995/96. In the index components, GCAU's for dairy and cattle on feed are down in 1997/98 and hogs plus poultry are up.

Milk production in 1998 is expected to be about the same as the 156 billion pounds expected to be produced in 1997. Milk output per cow is expected to increase and the number of milk cows to decline. Thus, increases in milk production are not necessarily associated with increased cow numbers. On July 1, 1997 (latest data available), grain and other concentrates fed per dairy cow were 19.0 pounds, up from 18.3 in 1996.

Commercial beef production for 1998 is expected to be down 2 percent from the 25.3 billion pounds expected in 1997. Cattle on feed on September 1 were up 16 percent from last year as placements in August continued strong. Still, with cattle inventories down and beef production projected to decline in 1998, feed demand would be expected to be weaker.

Pork production in 1998 is expected to increase 9 percent from the 17 billion pounds expected in 1997, which was about the same as in 1996. Hog farmers on September 1 indicated that, compared with a year earlier, they intended to increase the number of sows farrowing during September-November 1997 by 7 percent and in December 1997-February 1998 by 8 percent. If these intentions are realized, feed needs by the pork sector are likely to be stronger in 1997/98.

Broiler, turkey, and egg production in 1998 are expected to increase from the expected 1997 levels and continue the strong demand for feed grains. Broiler production in 1998 is expected to increase 7 percent from 1997 as producers respond to strong domestic and international demand as well as abundant feed supplies and lower prices. Turkey production in 1997 is expected to total 5.5 million pounds, about the same as 1996. In 1998, turkey producers are expected to increase production 5 percent from the expected 1997 output. Egg producers are expected to produce 6.6 billion dozen eggs in 1998, up 2 percent from the expected 1997 output. With these increases in production, feed needs by the poultry sector are likely to remain strong.

The season average price of corn received by farmers is forecast at $2.55-2.95 per bushel in 1997/98, up 10 cents from last month. The forecast farm price of sorghum was similarly increased 10 cents to $2.30- 2.70 per bushel. Stronger demand prospects and a slightly smaller feed grain supply will provide support for prices. The stocks-to- use ratio for corn is forecast at 8.3 percent, down from 10 percent in 1996/97.

Market prices for corn strengthened at the beginning of October, a bit earlier than might be expected given the limited harvest progress at that time. Typically, the seasonal price pattern tends to hit a bottom around harvest and begins to rise to reflect the costs of carrying the crop in storage. This season's recent price strength may reflect a number of factors, including spillover from a robust soybean market, signs of strong corn demand, concerns about the status of China's corn trade, and fears that the U.S. crop may be smaller than some traders expected. Nearby futures prices recently reached $2.90 per bushel, up about 30 cents in the last 3 weeks. Central Illinois cash corn prices hit a recent low of $2.44 per bushel at the end of September, but since then have increased about 30 cents.

China's corn production in 1997/98 is forecast at 105 million tons, down 5 million from last month, and 22.5 million tons below a year ago. As the growing season progressed, extensive damage from drought in the North China Plain became more apparent. The reaction by the grain marketing system in China has been complex. Even as drought was beginning to reduce corn production prospects, a record wheat crop was harvested, straining available storage capacity. Large corn stocks had been built up during 1995/96 and 1996/97, especially in Northern China.

China sold corn aggressively this summer, especially 1995- crop corn that had been procured by the government at lower prices. Even as corn prices in China increased due to the drought, and in Southern China moved well above world prices, China continued to sell old-crop corn out of the North into the world market. These greater than expected sales and shipments boosted forecast China corn exports for both 1996/97 and 1997/98. Reduced production and increased exports are expected to reduce China's ending stocks of coarse grain by almost 20 million tons, about in half. The drop in China's corn stocks is about equal to the decline in world coarse grain stocks, and is driving the global stocks-to-use ratio to a forecast record low 11.1 percent. Larger than expected export competition from China is a major factor keeping the lid on U.S. corn exports, despite increased world demand.

October 14, 1997 Economic Research Service

USDA, Washington, D.C.

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