April 10, 2007

 

Big US corn crop needed to replenish stocks, stabilise prices

 

 

Initial forecasts show US farmers planting more than enough corn this year to accommodate rising ethanol demand, but the extra grain will be needed to replenish dangerously low stocks, feed the nation's livestock and meet foreign import demands, economists said this week.

 

Getting a corn crop this year to satisfy the ethanol industry--expected to produce 3 billion more gallons than it did in 2006--is just part of the equation, US Department of Agriculture chief economist Keith Collins told Dow Jones Newswires.

 

After a government forecast last week showed farmers will plant 90.5 million acres of corn this year, Collins said it appears there will be enough corn to go around.

 

"My rough calculation of the supply-and-demand balance sheet would suggest that we would increase our stocks slightly with a normal yield next year," Collins said.

 

Building stocks back up is important to "temper prices," said National Corn Growers Association (NCGA) economist Paul Bertels.

 

Prices have been high as ethanol production for months now has consumed record amounts of corn, forcing farm stocks to dwindle and bidding away grain from cattle, hog and chicken feed producers.

 

"Stocks are what determine price," Collins said. "Your supplies above your use are really what dictate market prices and so as you run your stocks down, then there is increased competition for those stocks and then prices go up and prices end up rationing the demand to meet your available supplies."

 

Ethanol producers consumed 2.15 billion bushels of corn last year and are forecast by the USDA to buy up another 3.2 billion bushels this year.

 

Collins told Congress earlier this year that farmers would need to plant an extra 6.5 million acres of corn, producing an extra 1 billion bushels, just to meet an expected 3-billion-gallon expansion in ethanol production.

 

Farmers may double that, judging only from the 15 percent increase in projected planting. If they meet the USDA-projected 90.5 million acres, they would likely harvest 83 to 83.5 million of those acres. Using a USDA yield forecast of 152 bushels per acre, that would equal roughly 2 billion more bushels of corn in 2007.

 

The additional corn will be needed, though, Collins said, expanding this week on his earlier comments.

 

"What I said was we're going to produce 3 billion more gallons of ethanol," he said. "That takes 6.5 million more acres (of corn), but we also pulled our stocks way down. We need more than 6.5 million acres because we can't pull our stocks down 1.2 billion bushels again."

 

US corn stocks by August--the end of the 2006/07 marketing year--are predicted by USDA to drop to just 752 million bushels, down from 1.967 million bushels at the end of the 2005/06 marketing year.

 

"So, we need the 6.5 (million acres) just to account for the increase in ethanol, and then we need more acreage to avoid pulling stocks down more," Collins said.

 

More corn on the market and in storage this year will likely ease the higher prices the livestock industry has been paying for feed, but it still won't be cheap, NCGA's Bertels said.

 

"It's a little more of a comfort level, probably for everybody," the economist said. "It'll still be more expensive for the livestock, but it won't be as bad as some of the speculation is now about it."