On Feb. 9, USDA released the latest World Agriculture Supply and Demand Estimates (WADSE) report, which showed the tightest U.S. corn supplies in 16 years. The 2010-2011 corn ending stocks are now projected at 675 million bushels – the lowest since 1995-1996, when the ending stocks were at 426 million bushels. The all-important corn stocks-to-use ratio for 2010-2011 is expected to be down to near 5% by the end of the current marketing year, which is the same stocks-to-use percentage as 1995-1996. That will put the corn stocks down to only 18 days of usage, which is extremely tight. By comparison, corn ending stocks a year ago were at about 1.8 billion bushels, or 40 days of usage.
The very tight corn supplies are a combination of reduced corn yields in some portions of the Corn Belt in 2010, which lowered the overall U.S. corn production, and increased corn demand for the current marketing year. Total corn production dropped from 13.1 billion bushels in 2009 to 12.4 billion bushels in 2010. Total corn usage in the U.S. is now estimated at about 13 billion bushels. The latest WADSE report has increased expected corn usage for ethanol production, feed usage, food production and exports.
The Feb. 9 report increased the estimated amount of corn to be used for ethanol production by 50 million bushels from a month earlier, which is now estimated at 4.95 billion bushels for 2010-2011, or nearly 40% of the total corn usage. Recently, the U.S. EPA increased the allowable ethanol blend from 10% to 15% in automobiles that are 2001 and newer. This could further increase the total ethanol consumption in the U.S., as well as increase the amount of corn needed for the ethanol production.
The tight corn supplies, along with rapidly rising food prices, could likely re-kindle the food vs. fuel debate that occurred in 2008, when corn prices reached their previous highs. Some members of Congress and several organizations have already called for restrictions in ethanol production, due to the tight corn supplies and possible impacts on the world food supply.
However, representatives of the U.S. ethanol industry point out that U.S ethanol production utilizes only 3% of the world’s grain supply, and that it uses “coarse grains” and not “food grains.” Furthermore, they emphasize that one-third of every bushel of corn used for ethanol is returned to the market as livestock feed in the form of dried distillers’ grains (DDGs) and other feedstuffs.
Corn Prices Rise Sharply
Corn prices have responded dramatically in the past several weeks to the very tight U.S. corn supplies. Nearby corn futures prices on the Chicago Board of Trade (CBOT) have risen over $2/bu. since late September 2010. The CBOT nearby corn futures are above $7/bu. for the first time since summer 2008. CBOT December corn futures prices for new-crop (2011) corn have also risen significantly since late November, closing at $6.18/bu. on Feb. 11. One year ago in 2010, nearby CBOT corn futures were trading near $3.60/bu.
Local cash corn prices in southern Minnesota have also risen sharply in recent weeks, topping out over $6.50/bu., the highest since summer 2008. Forward contract prices at harvest for 2011 corn production have increased to above $5.50 by mid-February. By comparison, local cash corn prices were near $3.25 in mid-February 2010, and new-crop prices were near $3.50.
Many producers have already sold a large portion of their 2010 corn, taking advantage of profitable price levels late in 2010. Some analysts estimate that 70-80% of the 2010 corn crop has already been sold, or has a price locked-in. As a result, the recent sharp rise in cash corn prices will not necessarily translate into added profit for producers on their 2010 corn production. However, many producers are taking advantage of the recent rise in corn prices to begin locking-in prices on their anticipated 2011 corn production.
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