Too many peanuts are in the pipeline and cotton prices are still struggling, so growers who don’t consider soybeans an option are taking a closer look at corn for 2009.
Corn, soybean and wheat markets rallied in 2008 to record-high prices in the spring and summer, says Nathan Smith, University of Georgia Extension economist. But since that peak, market forces quickly changed.
“Prices for corn, soybeans and wheat have dropped by half or more since establishing record highs in mid-2008,” said Smith in the 2009 Georgia Ag Forecast. “And the outlook for this year is uncertain as demand has weakened due to slow economic growth, recessionary forces and credit concerns. Corn, soybean and wheat acres in 2009 will be determined according to the direction of demand in a sluggish economy and production cost impact on grower margins.”
Looking back to 2008, Smith says U.S. growers reduced corn acres by 7.7 million to 85.9 million acres after producing a record crop in 2007. The average U.S. corn yield was pegged to be the second-best on record at 153.8 bushels per acre.
Based on a harvested acreage of 78.2 million, total production for 2008 is estimated at 12.02 billion bushels, one billion less than the record 13.07 billion-bushel crop of last year. “Adequate supplies to meet a demand driven by ethanol and exports were a concern in 2007 and in 2008,” says Smith. “Fortunately, above-average yields have been adequate to meet demand and carry adequate stocks into 2009.”
Georgia corn growers, he adds, followed the U.S. trend by reducing planted acres in 2008 from 510,000 to 370,000 acres. A total of 320,000 acres were harvested for an average state yield of 125 bushels per acre. “The majority of corn acres in Georgia are irrigated, and areas with non-irrigated acres suffered from drought conditions again in 2008,” says Smith.
Georgia, he says, is a fairly small player in terms of U.S. production, but is a large user of corn, with the livestock sector using about six times more corn than Georgia produces annually.
“The deficit will be affected by the operation of a 100-million-gallon corn ethanol production facility in southwest Georgia that will require about 35 million bushels of corn annually. Georgia has produced an average of 40 million bushels over the last three years. So, the grain deficit is expected to grow larger,” says Smith.
Last year, 12.77 billion bushels of corn were consumed for feed, food, industrial, seed and support, reports Smith. The forecast for 2008-2009 is for total use to contract to 12.53 billion bushels, which will exceed production by 500 million bushels. Feed and residual use will continue a decline to 5.3 billion bushels or about 42 percent of total disappearance of corn.
“Total feed is lower partly because of a substitution effect of distiller’s grain from ethanol production. Grain-consuming animal units are forecast to decline due to decreases in production of all animal categories except dairy in 2009,” he says.
Last year, corn exports surpassed the 1979-1980 record of 2.4 billion with 2.44 billion bushels. Exports, says Smith, were bolstered by a weak U.S. dollar and a global shortage of coarse grains.
“World production responded to the shortfall, and U.S. corn exports face stronger competition in 2009. The U.S. dollar has regained strength, making other origins more competitive with U.S. corn. Thus, the USDA projects corn exports to fall to 1 million bushels,” he says.
Estimates from late 2008 show a forecast for the average season price of corn for the United States to range from $4 to $4.80 per bushel, says Smith.
“Georgia growers may not have as many opportunities to sell $4 corn, but should keep watch for opportunities during the spring. The fundamentals suggest that when demand picks up again, prices will rally due to the concern to meet supply needs above 12.5 billion bushels.”
In the near-term, says Smith, corn prices have closely followed crude oil prices. “Not surprisingly, crude oil impacts corn fundamentals as more ethanol is produced from corn. Corn likely will continue to follow the direction of crude oil in 2009.”
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