This was bound to happen. High corn prices and drought squeezed livestock growers, decreasing feed demand. As long as manufacturers won't approve higher ethanol blends there is a cap on demand for ethanol. We're likely going to see a couple of years of low corn prices, which will impact the entire corn belt economy. If you are a landlord, expect rent prices to go down. If you are a banker, expect land prices to go down. Hopefully, not too many farm loans are secured by additional land that farmers own.
The U.S. Agriculture Department projected last week that production will exceed 14 billion bushels, topping last year's historic harvest.
Many analysts think this week's closely watched Pro Farmer crop tour will offer further evidence of a remarkably healthy crop, and that demand isn't likely to rise enough to offset the sharp increase in supply....
Expectations of a glut have driven corn prices down by 13% this year, to near four-year lows, after a 40% decrease last year. September futures, the front-month contract, rose 1% to $3.6575 a bushel on Friday on the Chicago Board of Trade. Contracts for December delivery, after the harvest, settled 0.7% higher at $3.7625 a bushel....
Farm animals are the biggest consumers of U.S. corn, gobbling up about 34% of the national supply, according to the USDA. The plunge in corn prices has been a boon for producers of beef, pork and poultry, with some growers adding more corn to their feed mixes in lieu of ingredients that may be costlier like hay and alfalfa.
Still, several factors likely will limit the increases. The disease porcine epidemic diarrhea virus has helped trim the nation's hog herd by 5%, or 3 million animals, from a year ago, according to USDA data from June. And the U.S. chicken flock is roughly the same size as a year ago.
Meanwhile, years of drought in the southern Great Plains has shrunk the nation's cattle herd to the lowest levels in six decades. The number of cattle in feedlots, which fatten animals for slaughter, fell 2% in July from the same time last year, and the calf crop is the smallest since 1949. Overall, the USDA projects the amount of corn fed to animals will increase just 1% in the year beginning Sept. 1....
Another third of U.S. corn typically goes to make ethanol, where consumption is constrained by the so-called blend wall: The vast majority of U.S. vehicles can't handle gasoline that is more than 10% ethanol, and the U.S. gasoline supply is already nearly 10% ethanol. That means U.S. ethanol demand can only increase if Americans pump up their overall use of gas, which the U.S. Department of Energy expects to tick up slightly this year and then fall in 2015.
That leaves exports.
Monday, August 18, 2014
Too Much Corn