For the first time in history, more of the U.S. corn crop is expected to be consumed by automobiles this coming year than by livestock and poultry. The shift is the result of several years of decline in feed use along with a steady increase in ethanol production.
USDA projected in its August crop production and supply demand estimates that ethanol plants will use 200 million more bushels of corn than animals will consume.
“That’s a first-time-ever type of change,” said Ron Plain, an Extension economist for the University of Missouri. “For forever, feed was the largest single use of corn.”
A big reason for the shift, according to Plain, is that high corn prices have forced livestock producers to shrink livestock and poultry stocks to reduce costs and get a better price.
“Critters have to eat, so many farms will have to downsize and that is reflected in the reduced forecast for meat production next year. You have to go back to 1995 to find a smaller amount of corn to be fed to livestock in the United States. That is going to make things tough for the livestock and poultry industries.”
The cattle industry is also concerned about the effects of overregulation on profitability and President Obama’s continued delay in sending off to Congress what could be very beneficial trade agreements with Colombia, Panama and South Korea.
Adding even more uncertainty to the corn supply picture is the impact of hot and dry weather on this year’s crop. USDA’s estimate of corn yields has declined by 4 percent, or 556 million bushels, from the 13.47 billion bushels forecast in July.
“Corn doesn’t like drought or hot, warm nights, so it wasn’t a surprise that USDA cut the yield estimates,” Plain said. “So far, August hasn’t been that bad a month, with lower temperatures this week and some rain, so if we cross our fingers it may not get any worse than this.”
The ethanol industry is quick to point out that annual U.S. grain supplies have grown large enough to accommodate the demand for ethanol, and that ethanol has had only a minor impact on food prices.
Nonetheless, corn ending stocks steadily declined over the last few years, at times spiking corn prices to very high levels. “The very, very tight carryover is why corn prices are going to be record-high this year,” Plain said. “We really need to plant more acres to corn next year than this year, and this was the second most acres planted in 67 years.”
Aiming for a 13.5 million corn crop every year may not be a high enough goal, especially when any kind of weather problem can threaten supply. To rebuild stocks, the market will ask for a record corn crop in 2012.