Corn and soybean supplies will remain tight this year even as increased plantings set the stage for record or near-record harvests, U.S. Department of Agriculture chief economist Joe Glauber said Feb. 24. That’s not good news for dairy farmers.
Exports and ethanol demand are expected to grow, keeping corn prices near historic highs and squeezing profit margins for dairy, beef and pork producers, Glauber said during an address at the USDA’s annual Outlook Forum in Arlington, Va.
“While livestock prices are expected to remain strong and further improvement in milk prices is likely in the months ahead, higher feed cost could lead to below average margins for livestock and dairy producers in 2011,” Glauber said.
“Unless this year’s weather is better than normal or plantings increase more than expected, stock levels for corn and soybeans should see only modest rebuilding in 2011-12,” Glauber said. “This will likely mean continued volatility in those markets.”
Corn futures in Chicago rallied 52 percent last year as the U.S. harvest produced weaker than expected results and prices continued higher in 2011, reaching a 31-month high near $7.25 a bushel earlier this week.
With oil prices topping $100 a barrel this week and concern growing over food inflation, Glauber likened the current environment to the 2008 outlook forum. Around the middle of that year, oil soared to a record near $150 a barrel and corn futures notched an all-time high of $7.65 a bushel amid a broad surge in commodity prices.
“Three years later, markets are again very tight, particularly for feed grains and oilseeds,” Glauber said. “While it is often said that the cure for high prices is high prices, even with additional supplies expected this year, it is likely that the tight stocks-to-use situation will not be entirely mitigated over the course of one or even two growing seasons.”
“This will mean continued high costs for feed which will keep margins for livestock producers at low levels,” Glauber said.
For corn farmers, high prices offer incentive to boost plantings this year, Glauber said. Farmers will plant an estimated 92 million acres to corn this spring, up from 88.2 million acres last year, he said.
Based on the USDA’s acreage estimates and a projected average U.S. yield of 162 bushels an acre, this year’s corn crop will be a record 13.76 billion bushels, up almost 10 percent from 12.54 billion bushels.
Still, even if farmers produce record yields, the ethanol industry’s increasing appetite for corn makes it difficult to build supplies near the abundant levels from a few years ago, Glauber said.
“Higher than trend yields or larger planted area could help rebuild corn stocks, but stock levels are not likely to return to recent levels over the course of one or even two seasons,” Glauber said. “Corn use for ethanol continues to grow.”
Ethanol makers are projected to use a record 4.95 billion bushels of corn in 2010-11, or about 35 percent of total U.S. supplies, according to a USDA forecast. Five years ago, the ethanol industry used 12 percent of supplies.
U.S. corn stockpiles at the end of the 2010-11 marketing year Aug. 31 are expected to fall to 675 million bushels, the lowest since 1996 and less than half the 1.71 billion bushels on hand at the end of 2009-10.
In Feb. 24 trading, March corn futures at CME Group in Chicago fell 5 ¾ cents to $6.85 ¾ a bushel. On Feb. 22, March futures touched $7.24 ¼, the highest price for a closest-to-expiration contract since July 2008.