Tightening Corn Availability and Potential Increased Stress on Corn Users

Dr. Robert Wisner
University Professor Emeritus


USDA’s January 11 grain stocks report and season-final crop estimates were some of the most important corn market indicators for the remaining months of the marketing year (1).   These reports allow analysts to have an updated look at one of the largest sources of demand for the nation’s corn crop, namely corn use for livestock and poultry feed.   Feed and residual use can be estimated only four times per year.   That’s because it is calculated as a residual, beginning with initial supplies at the start of the quarter plus imports, and subtracting other uses (which are measured directly) along with grain stocks remaining at the end of the quarter.  The “residual” portion of the feed and residual use category represents handling losses, spoilage, and possible statistical and measurement errors. U.S. corn imports normally are quite small and reflect shipments received from Canada.  This year, they are more significant because livestock producers in the southeastern U.S. are importing modest quantities from South America to offset the extremely tight U.S. supplies.  USDA projects that for the current marketing year, corn imports will be about 100 million bushels, 0.84% of the total U.S. corn supply. 

The latest information from the January 11 USDA reports indicates feed and residual use of corn has not yet been rationed by higher prices.   Insufficient rationing was expected by grain traders, but what was not anticipated was that fall quarter feed and residual use not only was not being reduced, but was sharply above a year earlier.   As a result, the corn market faces a significantly larger rationing job for the remaining three quarters of the marketing year than previously expected.

USDA economists partially offset the larger than expected first quarter feed and residual use by reducing projected U.S. corn exports for the 2012-13 marketing year by 200 million bushels.  Even so, domestic corn feeding will need to be reduced very sharply from now through August if exports are at the projected level.  The need for sharply reduced U.S. domestic feeding is occurring as foreign feed wheat supplies and corn from Brazil’s second season 2012 crop are starting to tighten substantially.  That combination may generate some increase in U.S. corn export sales in the next few months. It may also increase U.S. soft red wheat prices and reduce wheat’s competitiveness as a substitute for corn in domestic and international markets.   Foreign wheat prices have been increasing in the last few months and U.S. soft red wheat is now fully competitive in international markets. Cumulative U.S. soft red wheat export sales from last June 1 through January 17, 2013 were 27% larger than a year earlier.  That is in sharp contrast to USDA’s January 11 WASDE report projecting this year’s marketing year total soft red winter wheat exports to be 3% below last season.  The export sales are a strong indication that current official U.S. soft red wheat total use projections are too low, perhaps by perhaps 50 to 60 million bushels and that carryover stock projections may be too high by a similar amount. So, some corn users may be overly optimistic in the amount of soft red wheat feeding that they anticipate will help to offset very tight corn supplies.  The lower than previously expected soft red wheat carryover stocks will tend to somewhat limit the amount of soft red wheat used to replace corn in the summer months even though soft red wheat planted acreage is sharply above a year ago.

U.S. hard red winter wheat price trends will depend partly on whether the Great Plains drought will recede in the next few months. The last USDA crop condition report in late November indicated the crop went into the winter in the poorest condition in many years, if not the poorest since crop conditions have been reported.  Extended forecasts by the National Weather Service as well as private forecasters expect the severe drought in that area and the western Corn Belt will continue. (2)

The main alternative source of corn in international markets in the next four to eight months will be South America, along with limited supplies from the Ukraine.  Foreign demand for U.S. corn will be influenced by corn crop conditions in Brazil and Argentina,  and major logistical challenges that region will face as it attempts to increase its soybean exports from late February onward to offset a very sharp decline in availability of U.S. soybeans.    South American corn and soybean yield and production forecasts are favorable at this writing but it is still very early in their growing seasons and Argentine corn will soon be in need of more rain.   Also, the planting season for Brazil’s second crop corn is after the soybean harvest, so that crop has not yet been planted.  Its second crop can account for half of total Brazilian corn production.   Last year’s second crop was unusually large because of much better rainfall than typically occurs during the dry season in which it is raised.

September-November Corn Feed and Residual Use: How Much Reduction is Needed?

Unlike most previous short-crop marketing years, corn feed and residual use during September-November 2012 increased from a year earlier rather than being slightly below the same period of the previous year. Several developments may have contributed to this.  Livestock and poultry numbers, including hogs and pigs, cattle on feed, dairy cow numbers, milk production, layer numbers, and broiler production were very close to the year earlier numbers. Cattle and hog marketing weights were heavier than a year earlier. Also, hay supplies are very tight and expensive, with December 1 U.S. stocks almost 16% below a year earlier.

Another possible factor is the corn in southern U.S. that was harvested and used before September 1, 2012. Use of this portion of the corn crop would not be included in the June-August corn use data, but would show up in the September-November feed and residual use. The unusually low June-August 2012 feed and residual use could be partially accounted for by extensive feeding of early-harvested new-crop corn.

Other factors influencing the large first-quarter feed and residual use could include changes in the amount of corn in transit to ports (which was sharply below last year), and possible over-estimation of the 2012 crop.   Until there is other information suggesting that one or both of these two latter factors were significant influences, it seems best to take the indicated September-November corn feed and residual use at face value.  Its comparison with use in the September-November quarters of the last several years is shown in Figure 1.  Indicated September-November 2012 corn feed and residual use was 12.5% larger than a year earlier. (3) Figure 1 also shows the reduced amount of Distillers Grain (DGS) available for domestic livestock feeding this past fall quarter. 

September - November U.S. Corn feed and residuals use

How Much Reduction in Feed and Residual use is Needed for the Rest of the Marketing Year?

The significance of the lack of rationing of feed and residual demand in the first quarter can be seen more clearly by looking at the amount of reduction in feed and residual use needed for the rest of the marketing year to meet USDA’s projected marketing year total feed and residual use. 

As indicated in Figure 2, feed and residual use from December 2012 through August 2013 will need to decline by 12% from the year earlier level to attain USDA’s marketing year total feed and residual corn use.  Reaching that level likely would require a larger reduction in livestock numbers than is now indicated.  The main livestock numbers expected to decrease modestly in the next several months are those for cattle on feed.  The December Hogs and Pigs report indicated hog numbers during this period are expected to be at or marginally above the year earlier total. 

December - August U.S. Corn Feed and residual use

The average change from a year earlier in December-February feed and residual use for the last seven short-crop years was a 1.9% decrease (4).  The range for these years was from a 9.4% decrease to a 16.5% increase. The largest decrease occurred in 1995-96 and the largest increase occurred in 2010-11.  With this historical range, there is much uncertainty about what USDA’s March 29 grain stocks report will reveal for December 2012-February 2013 corn feed and residual disappearance. 

Seriousness of Feed Rationing Challenge

To illustrate the seriousness of the domestic feed demand rationing needed for U.S. corn in the rest of the corn marketing year, consider three alternative scenarios for December 2012-March 2013 feed and residual use.  

Scenario I: If feed and residual use in December-February of the current marketing year is up 16% from last year, March-August feed and residual use would need to be about 49% lower than a year earlier to reach the USDA marketing year projection.  That would be an extreme (probably almost impossible) reduction, with crisis implications for the entire U.S. livestock industry and would almost certainly create extreme pressure on the ethanol industry beyond what has been experienced so far. 

Scenario II: If feed and residual use in December-February of the current marketing year is 2% less than last year, March-August feed and residual use would need to be about 28% lower than a year earlier to reach the USDA marketing year projection.  That would be a very large reduction, almost certainly bringing substantial stress on almost all users of corn.

Scenario III: If feed and residual use in December-February of the current marketing year is 9% less than last year, March-August feed and residual use would need to be about 15% lower than a year earlier to reach the USDA marketing year projection.  Even that reduction would be likely to create major challenges for the U.S. and foreign livestock industries, the ethanol industry and other users of corn.

All three of these scenarios imply that very substantial reductions in corn feed and residual use will be needed in the rest of the marketing year to meet USDA’s latest marketing year total projections.  They also imply that stress on the livestock industry, ethanol producers, and other users of corn may increase in the months ahead.

Will U.S. Corn Exports be less than Currently Projected?

In its January 11 corn supply-demand report, USDA economists lowered their U.S. corn export projection for the current marketing year to 950 million bushels.  That was a 200 million bushel reduction from a month earlier.  If it materializes, U.S. corn exports would be the lowest since 1971-72, and would require December 2012-August 2013 export shipments to be 36% below a year earlier.   September-November U.S. corn exports, using Census data, were 46% below a year earlier.   If export demand falls short of USDA projections, that would free up more corn for domestic corn feeding.

To provide more perspective on corn export demand, total U.S. corn export sales through January 10, 2013 were 539 million bushels. (5)  That was a 48.9% decrease from a year earlier.   A continuation of that percentage rate of decline in U.S. corn export sales for the rest of the marketing year would put marketing year exports at 749 million bushels, assuming all sales were shipped out in the current marketing year.   That would push U.S. corn exports to the lowest level since 1970-71, the year before the export explosion of the 1970s began.  It would also free an additional 200 million bushels of corn for domestic feed and residual use. 

With the scenario above in which December 2012-February 2013 feed and residual use is down 2% from a year earlier (Scenario 2), an 11% decrease in March-August feed and residual use would still be needed.  With the scenario in which December 2012-February 2013 feed and residual use is down 9.4% from a year earlier (Scenario 3), March-August feed and residual use would need to be increased by 1.6% from a year earlier to meet USDA’s January 11 marketing year projection.  With the scenario in which December 2012-February 2013 feed and residual use is up 16% from a year earlier (Scenario 1), March-August feed and residual use would need to be reduced by 32% from a year earlier to meet USDA’s January 11 marketing year projection.

These scenarios indicate continued very weak export demand for U.S. corn that would modestly reduce but might not completely eliminate the need for major rationing of U.S. corn feed demand in the remainder of the marketing year.   However, current international developments strongly hint that U.S. corn export sales will be significantly larger than have occurred so far this marketing year.

Factors Influencing U.S. Corn Export Sales through Late Summer

To reach the 950 million bushel marketing year projection, U.S. corn export sales for the rest of the marketing year will need to total 411 million bushels.  The year ago numbers were total sales of 1,055 million bushels on January 10, 2012 and 488 million bushels from that time until the end of August.  Accordingly, U.S. corn export sales from now through late August need to be 15.8% lower than a year earlier to reach USDA’s January 11 marketing year projections. 

The sharp decline in U.S. corn exports so far this season reflects aggressive sales of feed wheat from the Black Sea area, Australia, and other countries, increased Ukraine corn exports and a very large 2012 Brazil second corn crop because of exceptionally favorable rainfall during its late February to August growing season.  With severely reduced 2012 wheat crops in Russia and other former Soviet republics, feed wheat supplies from that area have declined sharply in the last six weeks and are expected to remain quite small until at least the 2013 harvest season.  Ukraine corn exports also are expected to be reduced substantially from recent months. There is increasing discussion in Russia and international grain trade sources that Russia may import wheat before long, which could further tighten feed wheat supplies.  In addition, winter wheat in sizable parts of Russia is in below normal condition and creates uncertainty about the size of its 2013 crop.  

In the Southern Hemisphere, Australian and Argentine wheat crops are estimated to be down 26% and 29% respectively from a year earlier. Those crops have just been harvested.  Feed wheat supplies from these countries will be much less than last season.  Trade sources indicate EU is likely to require up to 4 million tons more corn imports than currently projected by USDA.   Another potential influence on feed wheat and corn prices as well as corn competitiveness is USDA’s January 11 projection that EU wheat carryover stocks this season will be a very tight 3.7 weeks supply.  With exceptionally tight wheat supplies, EU may decide to import more corn for feed.  Its corn imports will come from non-U.S. sources because of biotech issues.

Concluding Comments

USDA’s latest corn supply-demand information, along with quarterly historical feeding patterns and international crop estimates, show an even tighter corn supply situation than expected a few months ago.  The extreme tightness is caused by last year’s U.S. drought that sharply reduced U.S. corn yields, indicators that U.S. corn feeding has not yet been rationed and was significantly larger than a year earlier, and by reduced crop production in several important foreign cropping areas.   Export and ethanol demand for U.S. corn have been rationed by the higher prices, but without a large reduction in U.S. corn feed demand, corn supplies could be tighter than indicated by the already very low USDA corn carryover stocks projections. 

In this setting, USDA’s March 29 grain stocks report will be a very important market indicator to watch.   Current animal and poultry numbers, marketing weights, and very tight alternative feed supplies would tend to imply December-February corn feed and residual use may be near last year’s level.   If that is the case, a very sharp reduction in March-August corn feeding will be needed.

U.S. corn export demand has been very weak so far this marketing year.   In the discussion above, we pointed out several emerging developments that may cause stronger U.S. corn export sales than in the September-January period.    In addition to this combination of developments, a sharp reduction in Brazil’s corn exports is expected in the next several months as its marketing system focuses on soybean exports and copes with logistical problems that are already starting to occur.   With these emerging developments, it seems likely that U.S. corn export sales for the next four to six months may be somewhat stronger than so far this season and might even slightly exceed USDA January 11 projections.

With diminishing foreign feed grain and feed wheat supplies, U.S. corn is becoming more competitive in world markets.   At this writing, wheat at Australian ports is reportedly selling in the low $340 per ton ($9.20 range/bu.) range, French wheat in the upper $340 per ton range and U.S. soft red wheat at the Gulf priced around $310 per ton.   Gulf U.S. corn for export at this writing is around $305 per ton.  Price competitiveness is a major consideration in foreign buyers’ purchasing decisions.   Another important factor is the risk of shipment delays.   Trade sources indicate shipping delays already are becoming a factor in Brazil, even though only a very small percent of the soybean crop has been harvested.  The risk of shipment delays appears likely to be less in purchases from the U.S. than in corn shipments from South America in the next several months.


1   The grain stocks report is available at http://usda01.library.cornell.edu/usda/current/GraiStoc/GraiStoc-01-11-2013.pdf  and the season final crop production estimate is available at http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1047


3  Quarterly corn supply and use data are available at http://www.ers.usda.gov/data-products/feed-grains-database/feed-grains-yearbook-tables.aspx  

4  The years we designate as short crops are those where production fell well short of demand.   Some of these years reflected small reductions in the corn yield  per acre and a large increase in demand resulting from the rapid growth in corn processing for ethanol and co-products.   The years used here as a base for comparison were 1995-96, 2001-02, 2002-03, 2006-07, 2008-09, 2010-11, and 2011-12

5  FAS, USDA, Export Sales, http://www.fas.usda.gov/export-sales/esrd1.html