After a five-year "growth spurt," the question now is whether the demand for U.S. corn has peaked.
By Darrel Good and Scott Irwin, University of Illinois
The U.S. corn industry experienced a significant "growth spurt" beginning in the 2007-08 marketing year that continued through the 2011-12 marketing year. That five-year boom period was characterized by larger consumption, larger production, and higher prices; a combination that demonstrates the strong demand for U.S. corn beginning in 2007-08. The issue moving forward is whether or not demand for U.S. corn has peaked. The answer to the question has important implications for corn prices, farm incomes, land prices, and corn processing and handling industries.
Consumption of U.S. corn averaged 11.045 billion bushels per year from 2004-05 through 2006-07 and 12.688 billion bushels from 2007-08 through 2011-12 (Figure 1). Similarly, U.S. corn production averaged 11.15 billion bushels from 2004 through 2006 and 12.606 billion bushels from 2007 through 2011 (Figure 2). The marketing year farm price averaged $2.37 in the period from 2004-05 through 2006-07 and $5.25 from 2007-08 through 2011-12 (Figure 3). Record high prices have been experienced during the 2012-13 marketing year, but much of that price strength is related to the large shortfall in U.S. production in 2012. The combination of smaller supplies, high prices, and reduced consumption provides a less clear picture about current demand strength. The question of future corn demand requires a look at each of the three major consumption sectors--ethanol, feed, and exports.
The consumption of corn to produce ethanol grew rapidly from 2004-05 through 2010-11 (Figure 4). Some of that growth stemmed from federal legislation that required minimum and increasing quantities of domestic biofuels consumption. Almost the entire non-advanced portion of those requirements has been met with corn-based ethanol. To date, most ethanol has been consumed in a 10 percent blend with conventional gasoline. As that 10 percent blend wall has now been reached, increased consumption will require consumption of higher ethanol blends--E15 or E85. If consumption of those blends increases enough to meet the entire non-advanced biofuels mandate of14.4 billion gallons in 2014 and 15 billion gallons in 2015 and beyond, corn consumption could grow to 5.14 billion bushels in 2014 and 5.36 billion bushels in 2015 and beyond, assuming zero net trade of ethanol. We recently concluded that consumption of those blends will likely increase slowly over the next two years. If that is the case, corn use for ethanol production may have peaked in the 2010-11 and 2011-12. Ethanol exports could provide a pathway to increased production, but that market will likely be limited by the availability of Brazilian ethanol.