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Corn Demand Destruction

Published on: 10:46AM Mar 06, 2009

The chart of the week is feed use for corn. Recent feed cost ratios suggest historically poor margins for protein/dairy producers in February. I know what you’re thinking; “We already know this.” And you’re right we do. We’ve been beating the protein/dairy producer, and for that matter ethanol producer, poor margin drum for over a year. But I’d like to focus this week on the apparent demand destruction that is occurring with corn. We’ve seen it happen with crude oil and guess what- it’s happening with corn. Feed use for the current corn crop (2008/09- crop that was harvested last fall) is estimated by the USDA at 5.3 billion bushels, the smallest feed use in the last 10 years. If the estimate is correct, the annual feed use will decline 855 million bushels this crop year since peaking in 2004/05. And history suggests that it may take a while to build feed demand back up again. The last time we had a technical upward shift in the corn market (1972/73) it took 7 crop years for feed use to return to the peak it had made in 1972/73. The difference now is that corn has another big demand player in ethanol. But we all know that ethanol producers are struggling as well. Ethanol and feed users are projected to utilize roughly 74% of the entire 2008/09 corn crop. 74% utilization from industries that are financially challenged does not bode well for demand.

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