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Economist: Short Corn Supply to Force Reduced Consumption

August 31, 2011

With the 2011 corn crop not likely big enough to meet demand and as prices continue to rise, livestock producers soon might be facing a critical decision: whether they should reduce their use of corn for feed.

Purdue Extension agricultural economist Chris Hurt said the livestock industry probably would cut back when 2012 crop prices rise above $7 per bushel - a level the market has now reached.

The USDA's August World Agricultural Supply and Demand Estimates, or WASDE, report forecast the average U.S. farm corn price between $6.20 and $7.20 per bushel. The corn futures market prices have surpassed the $6.70 mid-point of USDA's range and are now pricing in the low-to-mid $7 area for 2011 average cash crop prices.

For the pork industry specifically, Hurt estimates producers could pay, on average, about $6.85 per bushel for corn and still meet other operating costs.

"Corn prices will have to move to new record highs on a marketing year basis to get animal industries to reduce corn use, and they are doing that now," Hurt said.

Livestock producers will compete for short corn supplies with other users, such as biofuels producers and export markets, Hurt said.

"The largest competitor for corn in the coming year will be the ethanol industry where USDA analysts currently estimate 5.1 billion bushels of corn use," he said.

About 4.7 billion bushels will go to meet the mandated domestic Renewable Fuels Standard, with the additional 400 million bushels used to make ethanol for export, Hurt said. That means that according to USDA, 39 percent of the 2011 corn crop will go to ethanol production.

"Mandated corn use was troublesome to the animal industries when corn was abundant," he said. "Now with short corn supplies, the concerns are even greater.

"The short supply also increases the odds that some end users, including the animal agriculture industries, will appeal to the Environmental Protection Agency to reduce ethanol mandates for 2012."

If mandates aren't reduced, the cutback in corn usage will have to come from non-fuel sectors, such as animal agriculture and corn exports.

"There has been a general assumption that foreign customers would reduce consumption as prices rise; however, in 2007 and 2008 foreign customers increased purchases," Hurt said. "Given the low value of the dollar and strong desire of many foreign governments to do what they can to moderate food inflation, the question remains whether the foreign sector will cut their imports of U.S. corn this year."

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RELATED TOPICS: Corn, Hogs, Livestock

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