West Lafayette, Indiana
July 22, 2002

Consumption is outpacing crop production in the United States and other grain-growing nations for the first time in years, and unfriendly weather isn't helping matters.

World soybean and wheat inventories are at their lowest points since 1996, with carryover corn stocks the tightest they've been in 27 years, said Chris Hurt, Purdue University agricultural economist. He warned that the gap between consumption and production could expand even further if 2002 crop
yields are below average.

Crops around the world are struggling under drought conditions or problems caused by late planting.

Carryover numbers dispel the myths that excess crop production is here to stay and low farm prices are a permanent fixture, Hurt said.

"I think there's a feeling in the marketplace that we're going to have perpetual crop surpluses," he said. "We've been in that kind of situation since the 1998 crop, and a lot of producers think they won't see higher prices. I think that is a mistake.

"We have to recognize that world stocks have tightened substantially. We're virtually without surplus at this time. Any situation where there's extra demand or lower supplies ‹ as we're looking at this year ‹ can lead to substantially stronger prices."

There is leftover grain from 2001, but the stockpile is shrinking. At the beginning of the year, U.S. corn stocks stood at a projected 1.6 billion bushels, a volume consistent with the crop years of 1998-2000. That projection already has been lowered and could be reduced significantly more this fall if the corn harvest fails to reach the 9.8 billion bushel production level estimated by the U.S. Department of Agriculture earlier this month.

"We were already looking for carryovers to drop to about 1.5 billion bushels with the normal size crop," Hurt said. "But as we begin to look around the country and see the weather problems that we have ‹ dry weather throughout much of the Corn Belt, late planting in the Eastern Corn Belt ‹ we have to
be talking about a crop smaller than 9.8 billion bushels. The futures market right now is trading closer to a 9.3 billion to 9.4 billion bushel corn crop. That reduction alone would drop our carryovers to about 1.1 billion bushels."

Planting in many areas of Indiana and the Eastern Corn Belt was literally washed out by wet weather in April and May, forcing farmers to put seed in the ground weeks behind schedule. Now that the corn and soybean crops have emerged, needed rainfall has stopped. Conditions are direr in the Western
Corn Belt, where farmers are suffering from an extended drought.

"In the U.S. we've not had a weather setback, in terms of yield loss, since 1995," Hurt said. "That's a six-year run with average or above average size yields and production in the U.S. That's unusual."

Weather concerns also plague other world grain producers. Farmland in Australia is parched, and Canada's productive prairie provinces are mired in the same drought aggravating the Western Corn Belt.

While weather plays havoc with the 2002 crop, consumption speeds along. Consumers are devouring grain at a faster rate than farmers can increase production, Hurt said.

"Maximum grain stocks were reached about 1998," he said. "Since that time we've generally seen world consumption exceed production.

"We've seen dramatic growth in soybean consumption, as an example. The rate of consumption increase is in the range of 6 percent to 7 percent per year. The reason we've seen that kind of consumption increase is because we've had very low prices, primarily because South American farmers have increased soybean acreage dramatically in the last five years, by 50 percent. But
United States farmers also have increased soybean acreage ‹ about 15 percent ‹ in the last five years."

Tighter stocks and a potentially poorer 2002 crop point to higher cash prices for farmers this year.

"Corn prices already have increased substantially, in the range of 25 cents to 30 cents a bushel," Hurt said. "Soybeans, in some cases, have experienced a dollar per bushel increase in price since spring, and wheat prices are at the highest levels we've seen since the 1997 crop."

In Indiana, corn currently is selling for between $2.20 and $2.30 a bushel, soybeans between $5.80 and $6 a bushel and wheat between $3.15 and $3.30 a bushel.

Grain prices are likely to bounce up and down in the weeks ahead as the market works through supply-demand issues, Hurt said. Farmers with grain to sell should keep a close eye on market trends, he said.

"The question is, are these prices high enough at this point to get the consumers of the world to cut back just a little bit?" Hurt said. "I think what we would tell producers is, 'Be ready and be watching these markets.' We'll probably have some very strong action to the upside during the next three to four weeks, and that really could be the next two weeks as we enter the period of primary silking on corn throughout much of the United States."

As of Monday (7/15) only 9 percent of Indiana's corn crop had silked, compared with 48 percent at the same time last year, according to the Purdue-based Indiana Agricultural Statistics Service (IASS). The current corn crop was rated 48 percent good to excellent, compared to 78 percent last year. Fifteen percent of the 2002 corn crop was rated poor to very poor.

The IASS rated the 2002 Indiana soybean crop at 51 percent good to excellent, compared to 70 percent a year ago. Fourteen percent of this year's crop was rated poor to very poor.

In 2001, Indiana farmers produced 884.5 million bushels of corn and 273.9 million bushels of soybeans, both 9 percent above 2000 totals. Average yield per acre was a record 156 bushels for corn and 49 bushels for soybeans.

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu
Source: Chris Hurt, (765) 494-4273; hurtc@purdue.edu

Related Web site:
Purdue University Department of Agricultural Economics Grains and Oilseeds Outlook: http://www.agecon.purdue.edu/ext/outlook/grain_oilseeds/index.asp