As the New Year approached it appeared that the corn market would follow it’s bullish run with steady prices supported by continued exports and high domestic use. However, following the release of several USDA reports in January updating the outlook on corn supply and demand, prices weakened sharply. The net result was a $0.10 drop in corn futures prices in the next two days after the reports were out.

At an estimated 9.97 billion bushels, corn production in 2000 was up 6 percent from 1999 meaning production was even higher than expected. Less corn feeding in the fall quarter intensified the negative impact of the news by further increasing carry over stocks for 2000–2001. Pulling out the third leg supporting corn prices is continued reports of reductions in corn exports.

Higher production
Projected U.S. 2000–2001 ending stocks of corn are up 52 million bushels from last month despite reductions in supply. That’s because reductions in use exceed the cuts in supply. Speculation had it figured that revisions in the corn stocks would denote lower corn supplies than previously reported. Supply estimates were reduced but not as much as expected. In fact, analysts now put corn carry over stocks at about 1 percent higher than expected. The corn crop is estimated at 9,968 million bushels, down 86 million from last month but still more than 500 million bushels above the 1999 crop. The 2000 corn crop is the second largest crop behind 1994’s record production of 10.1 billion bushels, due in part to average U.S. grain yields of 137.1 bushels per acre, an increase of 3.3 bushels from 1999.

Lower domestic demand
Projected feed and residual use is down 75 million bushels from last month because the Dec. 1 stocks indicate smaller-than-expected use in September, October and November. Corn feeding in the fall quarter was indicated to be one percent below a year earlier, based on the Jan. 11 stocks report, and reported processing use and exports.

That’s unexpected because USDA’s December Cattle-on-feed report revealed that the on feed inventory is still larger than a year ago and 9 percent larger than the five-year average for December. Long-term, however, look for the cattle on feed inventory to fall below the previous year’s level in early 2001. That is because feeder cattle supplies are expected to remain tight this winter and, as a result, placements this winter and spring will be smaller than a year ago.

Declining exports
Projected exports are 50 million bushels below last month because of increased competition from Argentina and Brazil according to the World Agricultural Supply and Demand Estimates report. Meanwhile, Starlink problems continue to be a major factor contributing to export decline. It is reported that corn exports have seen a 15 percent decline from a year earlier in cumulative U.S. corn exports from Sept. 1, 2000 through Jan. 4, 2001.

Export projections have been lowered for the marketing year to a seven percent increase—four percent or 75 million bushels below the latest USDA projection. Season-to-date U.S. corn exports and outstanding unshipped export sales through Jan. 4 (one-third of the way through the marketing year) were down 12 percent from a year earlier. To reach USDA projections, exports for the rest of the marketing year would need to be up 27 percent.

Possible bulls
Skyrocketing natural gas prices could hike nitrogen fertilizer prices enough to cause an acreage shift from corn to soybeans. Fewer corn acres could support prices say some analysts. Most analysts do not see much, if any, decline.