December 26, 2008


Relief seen in US corn supply and demand concerns


Concerns on US corn supply during the 2008-08 marketing year have been eased by an updated USDA balance sheet, while demand for the 2009-10 year is expected to increase.


US corn-ending stocks for 2008-09 is expected to reach 1.474 billion bushels, up from the November forecast of 1.124 billion bushels, according to the USDA's December 11 corn supply/demand balance sheet.


The November forecast had raised concerns as any number around 1 billion bushels is considered tight, said Ron Frost, manager of AgProfit Driver from Pike Management Group.


The higher ending stock forecast was due to lower corn demand, said the USDA. The agency said while increased feed and residual use would be up in 2008-09, the rise would be more than offset by reductions in ethanol use and exports.


Despite reductions in meat output forecast, corn feed and residual use were increased by 50 million bushels as lower ethanol production reduces the availability of distiller grains.


US corn exports were expected to be 100 million bushels lower than the November estimate due to strong competition from large foreign grain supplies and the slow pace of US grain sales.


Although the US ethanol sector has been plagued with problems including ongoing shutdowns and bankruptcy issues, National Corn Grower Association CEO Rick Tolman is positive of the sector's future.


"The future for corn ethanol in the US remains bright. The trends in cost of production, productivity, and sustain ability are all moving in a positive direction," said Tolman.


The extra corn supplies will also relieve the US from planting pressures in spring 2009, said Frost.


US demand for corn is also expected to pick up in view of the government's new 8 percent ethanol mandate, which will sustain robust domestic corn usage, said Frost. The new ethanol mandate was scheduled for implementation on January 1, 2009.


The USDA placed total domestic corn use during 2008-09 at 10.385 billion bushels, down slightly from the November estimation of 10.635 billion bushels.


Frost said ethanol production capacity in the US is expected to produce nearly 13.1 million gallons in 2008-09, while the mandate requires only 11.1 million gallons.


US corn production during 2008-09 will need to reach about 12.5 billion bushels in order to meet consumption requirements, and any output estimates below 12 billion bushels would not sit well with the US corn sector, said Frost.


Frost said an 8-percent fluctuation in yield levels can either lead to a tight supply or excess stocks.


If CBOT soy prices range US$7.50 to US$9.50 per bushel and there were no major corn production problems in South America, then there would be room for corn values to be much lower than current levels but still be enough to attract enough acres, said Frost, adding that the US corn sector has reduced its need for an additional 3-5 million acres in spring 2009.


Rising input costs and uncertain profit margins were expected to lead to lower US corn area in the spring, according to a survey conducted by Farm Futures.


Based on the survey result, the group estimated that US corn area could fall 1 percent to 85.1 million acres in 2009.


The survey said US soy planting area will be higher on the expense of corn. The survey projected 2009 soy area to increase 5 percent on-year to reach a record 80.1 million acres.

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