RENO, Nev. – Planting decisions in the United States this year could be one of the most influential in decades.
Consumption of corn worldwide is exceeding production, driving up grain prices and hitting the livestock sector hard as meat producers struggle to hold their cost of production in line.
“No time during the last 40 years have we seen this much of an increase within a five year period from a production and a consumption standpoint,” said Mike Murphy of the analysis firm Cattlefax.
The impact of corn supplies and prices was a prime topic at this year’s National Cattlemen’s Beef Association annual meeting in Reno.ÂÂ
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Increased ethanol use adds to the uncertainty, said James Mintert, an agriculture extension specialist with Kansas State University.
“As recently as 2002, 62 percent of our production was going into feed usage and only 11 percent was going into ethanol production,” he said.
This year about a third of the crop is destined for ethanol and 45 percent will be used for livestock feed.
The U.S. government’s biofuel mandate continues to drive ethanol production even though price margins in the last year have been soft.
“The mandate is going to drive the industry, not the margins,” Mintert said.
On Dec. 19, president George Bush announced the expansion of the renewable fuels standard, which requires 36 billion gallons of renewable fuel to be used by 2022.
Growing enough corn could be a struggle, especially if there is widespread drought in the corn belt or producers decide to chase the higher prices offered for wheat and soybeans.
The closing corn price on the Chicago Mercantile Exchange Feb. 8 was $5.13 per bushel and December futures closed at $5.35.
However, soybeans futures were $13.38 per bu. Cattlefax’s target corn price for this year is $3 to $5 per bu. with an average of $4.30, compared to the 2006 average of $2.62 per bu.
Ending stocks of corn could decline to about one billion bu. at the end of this summer. There is usually a 20 percent carryover but it is now down in the low teens. Murphy said stocks cannot be rebuilt in one year so elevated prices will continue for the next few years.
Such low stocks will result in price volatility, Murphy said.
“We need to have more acres planted into corn than we did last year if we want to depress the price. That is not going to occur.”
Last year farmers planted 93 million acres of corn but with $13 soybeans, corn acres could drop by five million acres.
Cattlefax expects 68 million acres of soybeans, 65 million acres of wheat and 90 million acres of corn this year.
Some industry observers suggest Midwestern grass acres and conservation reserve land could broken up and replaced with crops.
There are about 26 million acres in the program with most in Texas, Montana, Kansas and North Dakota, which are not ideal for corn.
However, set aside land in Iowa, Minnesota, Nebraska and Illinois could be returned to production to alleviate tight supplies.
“They’re not going to do it in calendar year 2008 based on what we know today,” Murphy said.
