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"With consumption having the potential to balloon to 11.5
billion bushels in 2006-07, a crop of at least 10.4 billion
bushels is needed to maintain an ending stocks-to-use ratio of
10 percent," said Darrel Good. "A U.S. average yield near 142
bushels per acre would be required under the scenario of reduced
acreage and increased consumption. "That yield appears modest
in context of the average yields of the past two years but is
only about 5 percent below trend yield for 2006. The market
currently reflects a substantial increase in the average price
of corn for the 2006-07 marketing year, so that a significant
reduction in stocks is already in the market. Still, prices
could be quite volatile during the growing season if periods of
adverse weather surface."
Good's comments came as he reviewed the corn market, which is
currently characterized by surplus stocks. But, he noted, corn
consumption is increasing rapidly.
"Corn demand is expected to remain strong into the 2006-07
marketing year and beyond," said Good.
"Most of the focus in the corn market has been on the growing
ethanol market and the implications for future price and
production. That focus has been justified by the rapid growth of
ethanol production. For the current marketing year, however,
recent surprising developments center on feed and residual use
and exports of corn."
In September 2005, the USDA projected domestic feed and
residual use of corn during the current marketing year at 5.825
billion bushels. That projection appeared low in relation to the
level of consumption during the 2004-05 marketing year and the
projected level of livestock and poultry production.
"Part of the issue was the exceptionally high level of
apparent consumption during the 2004-05 marketing year," Good
explained. "At 6.162 billion bushels, use last year was nearly
300 million larger than the previous record level of
consumption, during the 2001-02 marketing year.
"In particular, use was very high during the last half of the
2004-05 marketing year. Calculated feed and residual use of corn
per grain-consuming animal unit was extremely high, suggest[ing]
that calculated use may have been inflated by an overestimate of
the size of the 2004 crop."
The USDA now projects feed and residual use of corn during
the current year at 6 billion bushels. The March 1 grain stocks
report, to be released on March 31, will allow the calculation
of use during the second quarter of the year.
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 "That report is expected to confirm a continuation of the high
rate of consumption experienced during the first quarter of the
year," said Good. "In addition, the rapid increase in the number of
cattle in feed lots is expected to support feed grain consumption at
a high level during the last half of the year."
The USDA's estimate of the March 1 inventory of cattle in feed
lots with capacity of 1,000 head or more was 8 percent above the
March 1, 2005, inventory and was at the highest level for that date
since the inventory report began in 1996.
"Many analysts now believe that feed and residual use of corn
this year will exceed 6 billion bushels," he noted.
Corn exports during the first four months of the 2005-06
marketing year totaled a modest 645.8 million bushels, 30 million
less than during the first four months last year, when shipments for
the year were a disappointing 1.814 billion bushels. Export
shipments, however, accelerated beginning in January 2006.
Weekly reports from the USDA indicate that shipments since Jan. 1
have exceeded those of a year ago by about 80 million bushels.
Unshipped export sales as of March 16 stood at 360 million bushels,
73 million more than on the same date last year.
Since January, Japan, the largest buyer of U.S. corn, has
accelerated its purchases of U.S. corn. Commitments to Japan as of
March 16 were 5 percent larger than the commitments of a year ago.
"Sales to other Asian destinations have also accelerated as a
result of the shortfall in Argentine corn production this year,"
said Good. "In addition, China has at least temporarily eliminated
its corn export subsidies, making U.S. corn much more competitive in
Asian markets.
"With 23 weeks left in the 2005-06 marketing year, it appears
that U.S. corn exports will exceed the current 1.9-billion-bushels
projection. Stocks of U.S. corn at the end of the current marketing
year will likely be smaller than the current projection of 2.35
billion bushels but will be large by historical standards."
Good added that the increase in corn consumption is occurring at
a time when U.S. producers are expected to reduce planted acreage of
corn.
"The USDA will release the results of the planting intentions
survey in the March 31 prospective plantings report," Good noted.
"As reported earlier, those intentions are expected to be 1.5 to 1.7
million less than planted acreage in 2005."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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