Long-term grain outlook promising

If current trends continue corn and soybean acreage will probably remain fairly stable, cotton acreage will trend down slightly and peanuts and tobacco will be up and down only slightly, says Rich Pottorff, an economist working with Doan Advisory Services.

Pottorff says, “2008 was an amazing year for agriculture. In my 30-plus years in the business, I have never seen such volatility.”

Despite cash price fluctuations of between $4.50 and $7.50 per bushel and correspondingly high prices for fertilizer, diesel fuel and seed, U.S. corn farmers should have done well in 2008. With an expected increase in demand of over 30 percent from 2008 to 2009 for corn for ethanol, this coming year should be even better.

Pottorff says that even ethanol at $1.60 a gallon and corn at $3.50 per bushel results in a profit margin of 14 cents a gallon for ethanol plants. The 178 ethanol plants currently in production and 26 more plants either under construction or being expanded can produce the expected 13 billion gallon per year capacity by 2010 projected by alternative fuel advocates.

The U.S. has a competitive edge in corn production, but not in soybeans and wheat. Though the demand for corn for use in ethanol production is not a significant factor worldwide, global demand for exports of U.S. grown corn remains high.

To meet this growing demand in 2009, U.S. growers will likely have to plant 89 million acres — up three million acres from 2008. Some of this extra acreage may come from land coming out the Federal CRP program, though early release of CRP acres is not expected by the USDA.

“If U.S. corn growers plant an expected 86 million acres of corn and harvest the projected 12 billion tons, we would still fall short of U.S. demand for 12.3 billion tons,” according to Pottorff. If this happens stocks will continue to decline and demand will continue strong — all pointing to a good price year for corn in 2009.

He points out that nearly 60 percent of corn production costs are in diesel fuel and fertilizer. If these inputs continue to trend downward, he says, the U.S. may come close to planting the needed 89 million acres of corn in 2009.

“The demand for more corn is not likely to come from soybean acreage, especially in the Southeast where many farmers have been burned the past two years by low production, high input costs and fluctuating corn prices. U.S. demand for soybeans has been consistent at somewhere around three billion bushels,” Pottorff says. Last year U.S. growers produced 2.9 billion bushels on 76 million acres.

Factoring in lower yielding double-crop beans in the Southeast and Southwest may mean a few more acres, but probably not significantly more beans. “We probably don't need to increase soybean acreage much beyond 76 million acres in the short-term,” Pottorff contends.

Wheat has been the most volatile of U.S. grown grain crops. Many growers rushed to get into wheat production to take advantage of huge jumps in market prices, created primarily by big money speculators who drove the price up. Once these speculators got out of the market, wheat prices plummeted, leaving many U.S. farmers with high input, low value grain.

On a global basis grain production has been on a downward spiral in seven of the past nine years — 2008 being one of the exceptions. Worldwide production of all grain crops was up about five percent above projections. Had that not happened volatility in all grain markets would have been even bigger, especially for wheat. Had wheat production been average in 2008:

  • Foreign wheat production would have been 25 million tons lower.

  • The foreign wheat deficit would have been 36 million metric tons instead of 11 million metric tons.

  • U.S. exports of 1.3 billion bushels or more would have been needed.

  • World wheat stocks would have gone down instead of up.

  • Foreign coarse grain production would also have been 25 million tons lower.

Had corn production worldwide been at 10-year trend levels world stock-to-use ratio would have dropped to 0.11 percent. With the above average corn yield in 2008, U.S. corn exports reached record high levels, despite heightened demand for corn for ethanol.

“The bottom line is U.S. corn growers need to produce yields above the trend for 2009 and beyond,” Pottorff says.

Grain as a whole has not kept up with demand on a worldwide basis, he stresses. Even with big crops globally stocks remain very tight. Corn stocks are down and wheat and rice are up and soybeans are flat.

Despite the damage done to commodity prices by global financial problems, Pottorff contends crops will be big in 2009. Even with expected high corn acreage for 2009, reduced stocks may mean higher prices over the winter, he says.

The Doane expert's outlook for cotton, especially for growers in the Southeast, is not so optimistic. Cotton acreage hit 15.3 million acres in 2006, but has fallen to 9.4 million acres in 2008 and may struggle to reach nine million acres in 2009, he says.

At some point cotton prices will respond dramatically to current prices of around 40 cents a pound, but probably not enough to create a demand for new acres nor to prevent a loss of current acres. “Cotton has changed dramatically and acreage will likely stay smaller,” Pottorff says.

“Finding more acres worldwide will be a challenge in grain production. The answer is more likely in increased production, which will generate unprecedented demand for fertilizer, seed, and diesel fuel worldwide,” he says.

Despite the challenges, Pottorff says the future for U.S. grain production looks very good for the next several years.

TAGS: Corn
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.