NASHVILLE, Tenn. – This year’s highly anticipated U.S. corn crop must reach a record 12 billion bushels or else shortages will develop and prices will rise further, says a U.S. cattle market analyst.
With the dramatic growth of corn-based ethanol plants in the United States and the feed demands of a massive livestock industry, supply could be tight if this year’s harvest fails to deliver record production.
Since the beginning of the decade, corn used for ethanol as a percentage of the total corn demand has tripled, reaching 18 percent of available stocks in 2006-07, reports the Cattlefax market analysis agency.
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Mike Murphy of Cattlefax said that demand makes it difficult to predict grain prices and potential impacts on the livestock and poultry industries.
Corn prices will increase and consequently hurt calf and feeder prices, he said at the National Cattlemen’s Beef Association annual meeting held in Nashville Jan. 31-Feb. 3.
“We know there will be an increase in acres planted this spring.”
Private analysts forecasts for 2007 corn acres range from about 85.5 million acres to as many at 90 million.
According to the USDA, last year American farmers seeded 78.3 million acres of corn, down from 81.8 million the year before. Of that, 71 million acres were harvested and with an average yield of 151 bu. per acre, the 2006 crop produced 10.7 billion bu.
Producers are under pressure to produce. Every two bu. yield increase adds 150 million bu. to production.
“There is no doubt we have to raise a 12 billion bu. crop,” Murphy said.
“If we don’t, we will have more concerns as we start looking at the marketing year of 2007 and 2008.”
He predicted corn prices would range between $3 to $4 US per bu. in the next 18 months.
His calculations show the corn cash basis at the end of 2006 was 15 cents a bushel stronger than the five year average. Corn producers have held onto their stocks, hoping for higher prices, which further tightened supplies in a bullish market.
Last year about five billion U.S. gallons, or 19 billion litres, of ethanol were produced at 112 plants, but with more operations coming on line, output will increase to an expected 11.5 billion gallons in 2007-08.
To produce that amount of ethanol would require 4.1 billion bu. of corn.
The livestock industry needs 5.5 billion bu. and about 1.8 billion bu. are exported. Together, that totals demand of 11.4 billion bu.
That demand applied to a 12 billion bu. crop would allow year end supplies to recover only modestly. The stock situation would continue to be considered tight, meaning prices would stay strong.
