In September we looked at corn availability for the year ahead, based on the USDA September 12 crop report. Although the production forecast was well below total corn use in the marketing year ending August 31 and was lower than indicated in August, corn prices have fallen sharply since then. The price decline has been due primarily to (1) heightened concern about the European sovereign debt crisis, with fears that some countries may default on debt, placing large international banks and the world economy at risk, and (2) USDA’s September 30 U.S. corn and wheat stocks report. The stocks report showed 160 million bushels more U.S. corn in storage on September 1 than anticipated by the grain trade and less wheat feeding than expected. Thus, U.S. corn supplies will not be as tight as previously anticipated. The reported stocks suggested domestic corn feeding has already been sharply curtailed, a conclusion that looks out of line with other indicators. The October 12 USDA crop report showed an additional 64 million bushel decline in expected 2011 corn production, along with an additional 123 million bushel decline in the November 9 crop report.
Analysts use quarterly grain stocks to calculate corn and wheat feeding. Feed use is not measured directly but is calculated as a statistical residual. Known uses indicated by processing and export data are subtracted from beginning supplies. Then, after subtracting ending supplies, the difference is termed “feed and residual disappearance.” The “residual” portion reflects spoilage, handling losses, and possible statistical errors.
Analysts are puzzled at the relatively low summer quarter corn feed and residual disappearance for the second consecutive year. Large livestock numbers and severe drought with lack of pasture and forage for cattle feeding in the southern Great Plains were believed to have boosted grain feeding. The lower-than-expected wheat feed and residual number would be expected to support June-August corn feeding.
In this article, we provide an updated look at corn availability for feed and other uses in the year ahead and potential reductions in use, taking into account USDA’s November 9 crop production estimates and the September 30 grain stocks report.
Summer quarter corn feeding
The amount of corn fed domestically can be influenced by a number of factors including (1) corn quality, (2) availability of other grains at competitive prices – primarily sorghum and wheat, (3) livestock and poultry marketing weights and numbers, (4) availability of forage and pasture for cattle, and (5) more recently availability of large quantities of distillers grain (DGS). Quality of the 2010 U.S. corn crop was quite good, thus tending to slightly reduce the amount of corn needed per pound of animal products produced when compared to the lower quality 2009 crop. Sorghum supplies appeared to be relatively tight, but a plentiful supply of competitively priced soft red winter wheat was expected to have replaced some corn feeding during the summer. However, wheat production and stocks data showed less wheat feeding than expected. These developments and livestock numbers indicate corn feeding should have been modestly above a year earlier. Distillers grain (DGS) supplies increased modestly from a year earlier during the summer quarter, as anticipated by the grain trade, but could not account for the difference between actual and expected stocks..
Figure 1 shows USDA estimates of quarterly corn feed and residual disappearance for the last few years and our estimates of the amount of domestic corn feeding replaced by DGS after deducting exports. We assume 23% of 2010-11 DGS production was exported. Estimated substitution of domestic DGS feeding for corn is based on corn replacement ratios that vary by livestock species. The highest replacement ratio is for beef cattle feeding, with substantially lower corn replacement ratios but higher soybean meal replacement ratios for dairy, hogs, and poultry. In Figure 1, the first vertical bar in each annual set moving from left to right represents the September-November quarter. The second represents December-February, the third March-May, and the last shorter bar is the June-August quarter. The lower part of each bar is USDA’s estimated corn feed and residual disappearance while the upper part is our estimate of corn replaced by DGS. Note the substantially lower summer quarter bars for the past two years when compared to earlier years. In the preceding three years, the average summer quarter total for corn and DGS was 940 million bushels, ranging from a low of 920 million bushels to a high of 952 million. For the last two years, summer quarter totals averaged 776 million bushels, with last year being 17 million bushels above the average and this year being 16 million bushels below it. The difference is even more pronounced when summer wheat feeding is included. June-August combined corn, DGS, and wheat feeding totaled an estimated 965 million bushels, down 22% from the 2007-2009 summer quarter average.