The United States was not the only country to raise a huge corn crop in 2004. The European Union produced an estimated 145 million metric tons of corn last year, a 16 percent increase from the year before. And China's estimated 135 million metric ton corn crop is 9 percent larger than last year.
Unfortunately, big crops mean big supplies, and that's keeping a lid on the market and constraining corn exports, according to Mark Waller, an economist with Texas A&M University. Waller spoke at the Ag Market Network's January teleconference.
But not all is bad, even as U.S. carryover rises on the record-breaking effort of U.S. producers. “Carryover is not going up as much as we might have anticipated, because we have total use all the way up to 10.2 billion bushels. We're using far more grain than we've ever produced in a single year, prior to this year.”
Indeed, a bright side to lower prices, according to Waller, is that “we're building a lot of use at these lower prices, and I think that is going to help us in the future. There are some positives in this market with record feed use and strong food, industrial and ethanol use.
Analysts are still having a difficult time trying to predict the impact that Asian rust will have on the U.S. crop mix in 2005, according to Waller. “We've seen projections ranging from a zero increase to a 3 million-acre increase in corn acreage.
One factor that could push corn acreage higher is the decrease in wheat acreage planted for 2004-05. “We're likely to see some of that wheat acreage that didn't get planted shift into corn as we move into the spring. On the other side of that, we continue to see higher fertilizer prices and higher natural gas prices. A lot of producers in the Plains states are probably looking at scaling back.”
Of course, the big rumble in the corn market this year is the staggering yields achieved by U.S. growers, who averaged a little over 160 bushels an acre on the 2004 crop.
Corn yields “are likely to come down closer to trend, around the 143 bushels per acre,” Waller said. “You could add bushels to that if we continue to build ground moisture reserves.
“If yields move back toward trend in 2005 and acreage isn't increased by more than a million acres, we could see strong demand pull ending stocks down in 2005-06. This should give us a 10-cent to 20-cent increase in the U.S. average price.”
While the United States would be hard-pressed to repeat its record-breaking crop in 2005, there are indications that China — whose grain stocks have been dropping — is looking to step up its grain production by providing better incentives to producers. In addition, Argentina has a large corn crop coming off this winter.
“From a marketing perspective, this is going to be one of those years where a lot of producers are going to find it difficult to get prices up far enough to do much pre-harvest pricing at profitable levels,” Waller said.
Waller added that over the last 14 years, new crop futures, from January until December goes off the board, have gone above $2.50 every year, even in the years when we had some pretty good stocks.
“So look for a little a rally. If we get up to that $2.50 level, start doing some pricing. It's going to be hard for the market to get above $2.75 unless we see some concern with acreage in the spring or summer, or see some drought concerns.”
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