Current US corn crop may fall short of needs

by Meat&Poultry Staff
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WASHINGTON – During the 2011-12 crop year, corn prices will have to be high enough to convince some end-users of corn to reduce their consumption from current levels because this year’s corn crop is “not big enough” to meet the entire consumption base that has been built. So said Chris Hurt, Ph.D., agricultural economist at Purdue University, relays the Aug. 26 edition of the National Chicken Council’s Washington Report.

Hurt explained in the Univ. of Illinois’ Weekly Outlook report the quotation of whether animal agriculture can compete for its share of the corn crop has a complex answer. He said much will depend on many factors, including how small the US corn crop is and corn production in the southern hemisphere this winter. Ultimately, the question is how high corn prices have to be to get a sufficient number of end-users to reduce consumption, Hurt said.

The largest competitor for corn in the coming year is the ethanol industry where USDA analysts currently estimate 5.1 billion bushels of corn use, Hurt added. To meet the mandated domestic Renewable Fuels Standard (RFS) will require about 4.7 billion bushels with nearly 400 million additional bushels used to make ethanol that will be exported. The 5.1 billion bushels of mostly mandated usage is 39 percent of the 2011 crop, Hurt said.

Animal industries found mandated corn use was troublesome when corn was abundant. But now with short corn supplies, the concerns are even greater. Using 400 million bushels of a limited corn supply to produce ethanol to be exported to countries like Brazil, in Hurt’s estimation, is “far beyond the intent of Congress in the 2007 energy legislation that established the current RFS.” Chances are some end-users, including the animal industries, will appeal to the Environmental Protection Agency to consider exercising the emergency clause to reduce ethanol mandates for 2012, he said.

The question remains whether the foreign sector will cut US corn imports this year, given the low value of the dollar and strong desire of many foreign governments to do what they can to moderate food inflation. Hurt’s analysis found that in 2007-08, the US livestock industry could not pay more than $6 per bushel for corn. However, he said that is no longer true as reduced per capita production of meat and poultry over the past four years has increased farm level prices for animal products. Corn prices will have to move to new record highs on a marketing year basis to get animal industries to reduce corn use, he added.

USDA’s August “World Agricultural Supply and Demand Estimates” report forecast the US average farm price between $6.20 and $7.20, with $6.70 being the mid-point of the range. The corn futures market is now expecting prices above the $6.70 USDA mid-point and closer to $7.00 per bushel for a US average farm price. Corn prices above $7.00 per bushel would be required for the domestic livestock industry to cut back on usage, Hurt concluded.
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