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"Without a significant increase in
acreage and a repeat of the record acreage yield of 2003, U.S.
production in 2004 could easily fall short of the current and
expected rate of consumption," said Darrel Good. "The current
environment of small stocks and growing consumption could result in
extremely volatile and generally high prices as the 2004 planting
and growing season unfolds and perhaps well into the 2004-05
marketing year.
"Prices could move to levels not
experienced since the mid-1990s, if they are not derailed by
widespread animal disease problems or similar events that
significantly undercut demand."
Good's comments came as he reviewed the
recent past and future of corn prices. Corn prices have moved
steadily higher since mid-October 2003. March 2004 futures prices
traded to $2.20 in mid-October, about equal to the July 2003 lows.
That price moved to $2.55 by early January 2004 and above $2.85 by
early February. Prices for the 2004 crop have moved higher along
with old crop prices.
"The 30-cent rally over the past month
was fueled by USDA reports showing a smaller-than-expected 2003 U.S.
corn crop and a smaller-than-expected Dec. 1, 2003, inventory of
corn," said Good. "In addition, consumption of U.S. corn has
proceeded at a rapid pace, resulting in further reductions in the
projected size of year-ending -- Sept. 1, 2004 -- stocks of corn."
In September 2003, the USDA projected a
2003 crop of 9.944 billion bushels, a marketing-year total
consumption of 9.9 billion bushels, year-ending stocks of 1.064
billion bushels and a marketing-year average farm price in a range
of $2.10 to $2.50. The final crop estimate of 10.114 billion bushels
was 170 million larger than the September forecast but 164 million
smaller than the November 2003 forecast.
"Last week, the USDA projected
marketing-year total consumption at 10.31 billion bushels,
year-ending stocks at 901 million bushels and the marketing-year
average farm price in a range of $2.35 to $2.55," said Good. "The
current projection of the marketing-year average farm price of corn
reflects the fact that over half the crop has already been priced by
producers."
Use of corn in all three categories is
expected to be sharply larger this year than use last year and use
projected at the beginning of the marketing year. At 5.8 billion
bushels, projected feed and residual use is 201 million bushels
larger than use last year and 175 million larger than the September
projection. Similarly, projected domestic processing use of corn, at
2.51 billion bushels, is 170 million larger than use of last year
and 35 million larger than the September projection. Finally, U.S.
corn exports are now projected at 2 billion bushels, 408 million
more than exported last year and 200 million bushels above the
September projection.
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"It now appears that consumption of
U.S. corn during the current marketing year will exceed the record
crop of 2003, resulting in a drawdown in stocks of 186 million
bushels," said Good. "It also appears that the market for U.S. corn
could expand during the 2004-05 marketing year. Domestically, that
expansion will likely come from continued growth in ethanol
production. Corn used for that purpose totaled 706 million bushels
in 2001-02, 996 million bushels last year and is projected at 1.15
billion bushels this year.
"With additional expansion in ethanol
production capacity, use could increase another 100 million bushels
in the year ahead, assuming supplies are ample, corn prices are
reasonable and there is no change in ethanol policy."
U.S. export prospects for 2004-05 are
supported by indications that China will continue to reduce the
magnitude of corn exports. If that is the case, the United States
will likely experience additional growth in sales to South Korea,
Indonesia and Malaysia. Chinese corn exports averaged 340 million
bushels per year from 1999-00 through 2001-02, jumped to 600 million
bushels last year and are projected at 315 million bushels for the
current year.
Year-ending stocks in China were
estimated at 3.25 billion bushels in 2000-01 but are projected at
only 844 million bushels for the current year.
"China maintained a very aggressive
export subsidy program in the face of declining production and
dwindling stocks," said Good. "Some effort to increase corn
production is being made in 2004 but may be too little, too late in
the face of rising prices of other commodities, particularly cotton.
"China is expected to maintain a modest
corn export program over the next several months but may not have
exportable supplies as early as the last half of 2005. Some are
projecting Chinese imports late next year. All else equal, U.S. corn
exports should increase as Chinese exports decline."
Good cautioned that there may be a few
factors that could temper the rapid rate of growth in world corn
consumption and U.S. exports being experienced this year.
"Two factors
to monitor include world wheat production, which has been very small
the past two years, and South American corn production," said Good.
"Argentine production is down sharply this year due to a decline in
acreage and yield but will likely rebound next year."
[University
of Illinois news release]
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