In the wake of increased demand for corn, 2012 was shaping up to be a year in which supplies would be extremely tight, and possibly the pipeline would run dry before the end of the marketing year when the 2012 crop would be harvested. However, the early spring allowed early planting and many producers booked corn for early delivery to end users with the help of early delivery premium prices. But if a lot of early maturing corn is being funneled into processing plants offering high premiums, what is the impact on calculating feed and residual use from the 2011 crop and how is that going to be estimated to adequately inform the marketplace?
Spring planting jumped to a record start this year due to a mild winter and warm soil temperatures in March that allowed many acres to be planted well ahead of normal. USDA economists say the early harvest has implications for many facets of estimating supply and demand by USDA. Their report indicates the origin of all supply and demand data used to assemble the World Agricultural Supply and Demand Estimates (WASDE), except for feed use of corn, which has no direct measure. The number “is derived to equal supply minus all other uses minus ending stocks. Implicitly, this derived component of the balance sheet includes actual feed use, measurement and estimation errors in other compo¬nents of the balance sheet, and postharvest crop loss factors such as waste and shrinkage that occur throughout the corn marketing channel.”
The economists say the early harvest will allow some of the new crop to be used by August 31, but not displacing old crop use. Another potential effect is for some replacement of old crop use, making old crop carryover more than would have been, had there not been an early harvest. But they report there is also the chance that total supplies of corn in the new marketing year may be less than the sum of the beginning stocks, new crop production because of the early deliveries. That would increase the derived feed and residual use for the new crop year, they say.
To solve the issue, the economists developed an econometric model designed to measure actual feed use as well as estimate the residual component. Because more grain that just corn is feed to livestock, the economists converted all feeds to tonnage, then measured a price that used the marketing year corn price received by farmers, but compared it to consumer prices to be able to adjust it against changes in consumer demand for meat. Next they calculated the size of the livestock herd, based on USDA’s tally of grain consuming animal units. Because many of those animals also consume distiller’s dried grains, the economists had to compensate for the amount of DDG’s consumed by livestock, and their pricing relationship with whole grains. Another factor that needed integration into the formula was the size of the corn crop.
One of the keys to estimating the potential amount of corn harvested before the start of the new marketing year is to use the estimate by the National Agricultural Statistical service of how much corn was harvested by August 31. That data is not available from all states every year, but NASS does have an estimate of how much corn is mature by August 31.
With all of that data the economists tested it on the 20 crops prior to 2010, to check the performance of their model. Except for several small burps in the 1996 to 2000 crops, the model worked well in estimating feed and residual use for both all feed grains and solely for corn.
With their economic model in hand, which passed their tests, the Economics Research Service staff has estimated 4.717 billion bushels of corn for feed and residual use for the marketing year that is coming to a conclusion at the end of August, which pointed to 12.5% of the corn crop to be mature by the end of August and potentially harvested. That also points to a reduction of 119.4 million bushels of the old crop not being used for feed and residual by the end of the marketing year. However, the economist also calculated that if 25% of the crop is mature this year by August 31, then 4.568 billion bushels of corn will be used for feed and residual use during the marketing year, replacing 149 million bushels of the old crop.
Currently, USDA is using a 4.550 billion bushel feed and residual number in the June WASDE report. It will be interesting to see if the WASDE and NASS statisticians adopt the model developed by the Economic Research Service and integrate the number into the WASDE estimates beginning in July. That report is scheduled for July 11.
The early planting opportunity this year, and the chance for early delivery premiums to farmers harvesting corn early has the potential for significantly changing the estimates of the size of the old and new corn crops. With 2012 crop corn being added to the 2011 crop, it is hard to estimate the size of the corn being fed and for residual allocation. USDA economists developed and tested a model which points to the potential for 4.717 billion bushels going to feed and residual use from the old crop, if 12.5% of the new crop is mature by the end of August.
Source: FarmGate blog