February 10, 2004
It now appears that the market for
U.S. corn could expand in 2004-05, if supplies are available,
said a University of Illinois
Extension marketing specialist.
"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 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, 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 two billion
bushels, 408 million more than exported last year and 200
million bushels above the September projection.
"It now appears that consumption of U.S. corn during the current
marketing year will exceed the record crop of 2003, resulting in
a draw-down 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 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." |