Will corn rationing begin now?

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“Corn use in the United States must decline by 1.4 billion bushels from last season,” says Marty Foreman, senior economist, Doane Agricultural Services. The comments were made Thursday after the USDA released its Crop Production update.

The report ignited a rally in corn futures driving prices about 5 percent higher even though it revealed higher than expected production levels. “Prices are higher even though corn production came in 100 million bushels above trade estimates,” Foreman said. “It seems that price weakness ahead of the report had already discounted a modest cut in production.”

However, the report also reinforced the tight supply expectations associated the 2012 drought-reduced crop. “This is the case not only for the United States but globally as well,” according to Foreman. World coarse grain ending stocks as a percent of use, which includes corn, are projected to fall to only 13 percent of annual use, the lowest level since the early 1970s.

“Corn prices at current levels should slow demand,” Foreman predicts. He expects corn futures prices to stabilize in the $7.50 to $8.00 per bushel range through the end of 2012 calendar year, and he does not anticipate new highs above $8.50. “Some sectors such as exports are already slowing,” he said. However, demand by other sectors such as the livestock industry, is yet to be determined. “At this point, corn for ethanol and feed use are less certain.”

USDA will update its corn production estimate again Nov. 9, but with the early harvest this year, Foreman predicts only a modest revision in current production levels. He expects the market will focus on weather in South America and weekly/monthly usage related to exports and corn for ethanol.

“Feed use is still expected to be down 9 percent from the previous year while ethanol use is expected to be down 10 percent,” according to Steve Meyer and Len Steiner, authors of the CME Group’s Daily Livestock Report. “It remains to be seen if current corn prices are enough to force cutbacks in livestock and energy demand for corn.”

The next gauge of feed use will not be available until mid-January when USDA releases the next quarterly Grain Stocks report.

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Bob Milligan    
St. Paul, MN  |  October, 16, 2012 at 08:24 AM

In economics as in everything else correct use of words is important. According to dictionary.com rationing is defined as: "to restrict the consumption of (a commodity, food, etc.): to ration meat during war." In other words rationing is a non-market method to allocate a short supply. I know of no one who has advocated rationing. The article is corrent that there will have to be major changes in quantities demanded due to the short supply, but please do not call it rationing unless that is what you are proposing.

danny farmer    
pa  |  October, 16, 2012 at 09:50 AM

thanks for the insight, bob; however 'rationing' is a term commonly used by market observers to describe what the market does (raise prices) to sllow consumption.

Huron SD  |  October, 18, 2012 at 09:15 AM

The opening line says “Corn use in the United States must decline by 1.4 billion bushels from last season,” The way this is worded indicates a reduction of domestic usage. I am not totally convinced that we will not see a reduction of exports also. I think this topic is very interesting to see who will be "chased away from the corn bin" and at what price.

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