December 11, 2008

USDA predicts big jump in corn ending stocks

Corn production did not change in today’s U.S. Department of Agriculture reports: USDA still estimates a national yield of 153.8 bushels per acre and a total crop size of 12.02 billion bushels.

Yet ending stocks for the 2008-09 marketing year jumped 350 million bushels to 1.47 billion. That’s a pretty big change (+31 percent from November's 1.12 billion).

So what changed?

Well, feed use increased 50 million bushels - but that was overshadowed by the decrease in corn use for ethanol (lowered 300 million bushels to 3.7 billion) and corn for exports (lowered 100 million bushels to 1.8 billion).

USDA reduced corn for ethanol for a couple of reasons. Oil and gas prices were very high last year so fuel blenders had a big incentive to include ethanol in all the gas they could, as ethanol was cheaper by comparison. Now that oil/gas prices have fallen (quite dramatically), that "dollars and cents" incentive to blend beyond what the Renewable Fuels Standard requires has lessened. Add to that delayed plant openings, temporary shut downs and the like and it is clear corn use for ethanol would shrink.

USDA also lowered corn for exports due to "strong competition" from larger foreign grain supplies and the slow pace of exports to date. A lot of grain was produced globally in the past year in response to higher prices, and demand is soft due to economic concerns. In fact, USDA projected world corn ending stocks for 2008-09 at 123.8 million metric tons - up from November’s estimate of 110.12 million tons.

All of the data, and lower prices of late, led USDA to lower the range for the average farm price of corn to $3.65-4.35. This is down from $4.00-4.80 in November and $5-6 in other words, the average estimated value of the crop has dropped $18 billion since September. The average of the price range for this year - $4 - is also lower than last year's $4.20 average. This, too, is a fairly dramatic change from where we were six months ago. Incredible, actually.

For the full supply/demand report, click here.

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