Will There Be Enough Corn?
10/28/2009 09:03AM
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With growing questions about the potential deterioration of the late crop, there are corresponding questions whether corn supplies will be ample enough to meet all of the estimated needs. Currently, USDA is projecting 4.2 billion bushels will be refined into ethanol during the new marketing year. That will put pressure on livestock producers, exporters, and may even raise corn prices paid by the ethanol industry. What is that delicate balance that must met between supply and demand?
Currently, USDA is projecting a 13.018 billion bushel corn crop as calculated in the October Crop Report. Ag economists Daniel O’Brien and Mike Woolverton at Kansas State University report that level of production with the old crop carryover would supply just over 14.7 billion bushels, a volume that would be the largest supply on record. But they are not certain that amount of corn is really available because of the threats to the new crop. They say both quality and quantity are called into question due to crop immaturity when cold weather halted growth and the damage to the crop from 2009 weather issues. They speculate that unless damage or harvest delays are extreme, the corn crop should be at near record levels.
O’Brien and Wooverton have been tracking corn use by ethanol refiners for several years. They say the 2007-2008 marketing year shipped 3.049 billion bushels of corn to ethanol plants. During the 2008-2009 marketing year that volume climbed to 3.700 billion, and now it is forecast at 4.2 billion for the current marketing year. They say livestock feed has been the dominant use of corn for the past 35 years, but those prospects have moderated because of the economic struggle in the livestock industry to balance meat supply and demand.
On the periphery is the export trade, which is quite variable, and has been since 1973. The US is currently supplying over 60% of the world’s corn needs, but demand fluctuates annually and exports have been a “wild card” at the margin, say the economists. With US and global corn crops enlarging each year, there is not always going to be a significant global need for US corn. On the other hand, ethanol use has jumped from 24% to 32% of total demand in the last three years, and even other industrial uses of corn have steadily increased.
The Kansas State researchers compared corn ending stocks with the total use and found, “total use of U.S. corn over time has been relatively more stable than has ending stocks. Also, ending stocks-to-use ratios are typically used measure of the relative scarcity of corn supplies in comparison to use, and generally been inversely related to corn market price levels over time (i.e., high ending stocks-to-use ratios have been associated with lower corn prices, and vice verse).”
O’Brien and Woolverton believe there to be an adequate supply of corn available to meet the ethanol demand in the current marketing year, but that higher export demand will be complemented by lower feed demand. But over the coming 10 years, the prospects may be different. They say USDA economists are pushing ethanol demand to 5.05 billion bushels by 2018-2019 and that assumes a steady upward production trend, with feed use climbing to 5.850 billion and exports to 2.225 billion bushels.
The Kansas State economists contend if exports grow more than anticipated then corn ending stocks will be seriously affected, even with exports growing only 5% to 10% more than expected. Such a growth rate in the current marketing year would push stocks to use from nearly 13% down to 4%. And they say the result would be high US corn prices.
Summary:
As ethanol consumption of corn rapidly grows, there will be challenges to supply enough corn if there are moderate growth rates for other uses of corn. “However, the critical issue is that in the long run the availability of supplies of corn for ethanol production are directly dependent on developments in other segments of both the corn supply – demand complex. In turn, these other sources of corn use are dependent on the broader set of domestic and foreign economic influences affecting the agricultural markets in general.”