Tight stocks, good demand: U.S. corn prices looking for support

If new farm bill provisions draw more U.S. acres into corn production, growers could see season-high prices placed early in the year — in March or April — unless weather becomes a threat to the crop during the summer.

“Looking into 2003, expectations are for more corn acres to be planted, perhaps even topping 80 million acres,” says George Shumaker, University of Georgia Extension economist. “The new farm bill provisions along with relatively weak soybean prices are expected to draw acres into corn versus soybeans.”

U.S. corn growers seeded 3 million more acres of corn in 2002 than in 2001, says Shumaker, planting a total of 78.8 million acres. Some of the additional acres came from soybeans while others came from wheat. Yields, however were disappointing, averaging 127.6 bushels per acre due to drought in parts of the Midwest and South.

Corn production from this past year totaled just slightly more than 9 million bushels, the lowest total since the last “big” drought year of 1995, he says. Production was down about 500 million bushels from the previous year.

“A relatively comfortable carry-in stock of 1.599 billion bushels helped ease the shortfall and prevented prices from moving significantly higher. Total supplies for the 2002-2003 marketing year will be 10.168 billion bushels,” says the economist.

Corn use during the 2002-2003 marketing year is projected to be near 9.775 billion bushels, down only slightly from the 9.82 billion used last year, says Shumaker. Domestic feed use is projected to decline slightly from 5.874 billion bushels to 5.675 billion. Cattle and swine numbers, he says, may be smaller during the 2002-2003 marketing year than during the 2001-2002 period, while poultry numbers are expected to rise slightly.

“Exports are expected to rise, but only marginally to 1.9 billion bushels. While this is an increase, it is slightly below the previous four-year levels that averaged about 1.95 billion bushels,” he says.

A large increase is expected in the “other domestic use” category, says Shumaker. “This essentially is the amount of corn used for human consumption. The bulk of the increase will come from new ethanol plants coming on line. The other domestic category will total about 2.2 billion bushels, an almost 150-million bushel increase over last year. Total domestic consumption of corn — both feed and other uses — will amount to just over 80 percent of total use.”

Corn ending stocks, says Shumaker, will fall sharply to only 843 million bushels, if the use projections are accurate. This would create the tightest stock situation since 1995. The stock-to-use ratio also reflects the very tight stocks situation at only 8.6 percent, he reports.

“U.S. corn prices should find strong support from the tight stocks situation and very good demand. Season-average prices are expected to average near $2.40, with Georgia prices averaging about 25 cents higher.

“While prices have trended downward since the weather scare high back in September, the charts offer hope that the trend soon will change to strengthening prices. A chart formation - a gap left in the charts - from back in June was closed during early December, clearing the say of upward momentum to begin.”

Soybean growers reduced acreage in 2002 for the second year in a row, planting 73 million acres, the lowest acreage since 1998, says Shumaker.

“It appears the lowered loan rates under the new farm bill may have had a role in the reduction. Yields during 2002 were slightly below the past five-year average at 37.5 bushels per acre. Drought in parts of the Midwest and Southeast appear to be the main reason for the relatively low yields.”

Soybean production in 2002 totaled 2.69 billion bushels, down from 2.89 billion bushels produced in 2001. Carry-in stocks were at the lowest level since 1997 at 208 million bushels. The total supply of soybeans is currently 2.9 billion bushels, down from 3.14 billion bushels for the 2001 marketing year, he says.

“Off-take will be down for the 2002 marketing year due to lower available supplies. There is strong global demand for protein, and that has provided a firm floor under the market. Domestic crush will contract slightly as it appears the total number of grain-consuming animal units in the United States will decline.”

Cattle and swine numbers may well be smaller during the 2002-2003 marketing year than during the 2001-2002 period, notes Shumaker. Also, exports likely will face greater competition from South American production if the weather cooperates.

Expectations are for significant increases in acreage in both Brazil and Argentina, he says, perhaps in the range of 8 to 10 percent. “If that crop is seeded without problems and weather remains favorable, it will be difficult for us to expand exports as buyers will purchase on an as-needed basis while awaiting harvest in the Southern Hemisphere during the spring of 2003.

Current expectations are for U.S. exports to be almost 900 million bushels, down from the record 1.065 billion bushels exported during the 2001 marketing year. Total use of soybeans will be near 2.725 billion bushels, down from 2.933 last year.

Ending stocks, he says, once again will be very tight at a projected 175 million bushels, the lowest level since 1996. The stocks-to-use ratio of 6.4 percent also reflects the tight carry out situation. Prices should be well supported under this scenario, at least until the South American harvest is complete.

“U.S. season-average prices are projected to average near $5.45, well above the $4.30 for the 2001 crop. Market makers will keep a weather eye toward South American crop conditions and take price direction from events down there.

“Georgia growers should keep a close watch on the markets and be ready to move out their soybeans held in storage on any rallies. Price will likely be lower next spring than during the winter months.”

Very early 2003 crop projections, says Shumaker, point toward a further reduction in U.S. soybean acreage. This could lead to tight U.S. supplies and be a market driver during the summer and fall of 2003.

U.S. wheat growers planted 60.4 million acres for the 2002 crop, an increase after five consecutive years of declining acreage, says Shumaker.

However, despite the increased acreage planted, harvested acres were only 45.8 million, down from the 48.6 million harvested last year and the lowest total since 1962.

“Wheat yields were very disappointing at only 35.3 bushels per acre versus a trend level near 40 bushels. Drought across much of the winter wheat areas as well as some of the spring areas sharply reduced yields.”

Total wheat production was only 1.62 billion bushels, the lowest output in 30 years, he says. Carry-in stocks were moderate at 777 million bushels. Total wheat supply for the 2002-2003 marketing year is 2.47 billion bushels, down from 2.94 billion bushels the previous year.

“Wheat use will remain relatively steady despite the lower total supply. Domestic food use is projected to increase slightly to 940 million bushels while exports may decline slightly to 950 million bushels. Feed use of wheat will decline to about 150 million bushels. Total off-take will be near 2.13 billion bushels.”

Ending stocks will be drawn down to a very low 348 million bushels or only 16.4 percent on a stocks-to-use basis, he says. That's the lowest level since 1972.

“Wheat prices for the 2002 crop should be well supported into the winter months. Season-average prices are projected to be near $3.80 with Georgia prices averaging somewhat below that level.”

Looking forward to the 2003 season, it appears higher prices from the 2002 crop have stimulated renewed interest in wheat, says Shumaker.

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