Volatility Likely to Continue
in Corn Prices
Reports indicate alfalfa and hay supplies are still low, pressuring prices.
The battle for acres between corn and soybeans, as well as drought conditions, pressure on corn supplies for fuel ethanol and demand by China are all factors that have steadily pushed the price of corn upward.
Nutrition and feed ingredient consultant Jerry Weigel believes this scenario is the "new normal." He says, "Now the norm is to expect the unexpected. It's my firm opinion that each year there will be something new to impact the vulnerability of corn."
With the release of the USDA Crop Production report and the monthly World Agriculture and Supply Demand Estimates (WASDE) Oct. 11, it does appear volatility in corn prices will continue — offering little relief for livestock producers.
The reports tightened up corn supplies, which could push prices higher. Corn production for 2012-2013 was lowered by 21 million bushel (bu.) to 10.7 billion bu., which is 13% less than the prior year. That was with a revision upward of 360,000 more acres harvested for grain. Average yield was lowered 0.8 bu. per acre to 122 bu. per acre. That's 25.2 bu. per acre less than in 2011 and would be the lowest average yield since 1995.
Estimated corn supplies for 2012-2013 were lowered by 214 million bu. Corn ending stocks for the same period were lowered 114 million bu. to 619 million bu.
With this forecast of lower corn supplies, Weigel anticipates corn prices could realistically range from $8.20 per bu. to a high of $8.80 per bu.
Of note, USDA did not change its estimated ethanol and feed demand from the September report. Feed use is still expected to be down 9% from the previous year, while ethanol use is expected to be down 10%. It remains to be seen if current corn prices are enough to force cutbacks in livestock and energy demand for corn.
Weigel believes if we see more E15 and E85 hitting the market, it will put even more pressure on corn. But, he also notes that distillers' grains can be a great resource for feed.
"For every bushel of corn that goes to distillery, one-third comes back as livestock feed. So we can live with both ethanol and cattle feed."
Looking ahead, Weigel remains optimistic. He points to better seed-corn genetics helping to overcome drought tolerance and improve overall trait efficiencies and effectiveness to increase yields.
He adds, "Never forget that the U.S. corn grower wants to plant corn, and I assure you they will plant corn. This is a fact."
For 2013, he anticipates that unless there is a real seed-corn supply issue, 97 million acres of corn should be planted in the U.S. next year, with 90 million acres harvested.
Weigel concludes, "Short term there are going to be some issues, but if we have a big year next year, by 2014 and 2015 the corn price could moderate to that $5.50 level."
Alfalfa and hay supplies
USDA did revise its 2012 production numbers upward for both alfalfa and other hay in its October Crop Production report released Oct. 11. The newest numbers won't do much to improve the overall low-supply situation or take pressure off prices in the months ahead, says Matt Diersen, ag economist with South Dakota State University Extension.
"We're in a better situation than we were thinking we'd be in just a few months ago," says Diersen, "but from a supply and logistics standpoint, it's not that much better."
For alfalfa and alfalfa mixtures, USDA forecasts total national production in 2012 at 55.6 million tons. That's up 1% from USDA's Aug. 1 estimate, but down 15% from the 2011 figure. If USDA's forecast is on target, 2012 production levels will be the lowest since 1953.
In the other hay category, USDA expects national production this year at 66.4 million tons, up 1% from both the August forecast and last year's figure. That would be the second-lowest production level since 1990.
However, October production totals appear not to have included hay baled on released Conservation Reserve Program (CRP) ground or from abandoned grain acres. "We could still see the numbers revised in December," says Diersen.
For price outlook on hay, Diersen says, "The supply is low enough to keep the pressure on price. And if we don't get some kind of a recovery in production next year, we'll be looking at these high prices staying around for quite awhile."
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