C ORN M ARKET O UTLOOK AAEA A NNUAL M EETING E XTENSION C ROP O UTLOOK S ESSION J ULY 25, 2011 Daniel O’Brien Extension Agricultural Economist Kansas State University Robert Wisner University Professor Emeritus Iowa State University

C ORN M ARKET P ROSPECTS A.  Risk of a Short 2011 U.S. Corn Crop a)  % 2011 U.S. corn crop ≤ 13.0 bln bu (13.47 bb July USDA)  Sharp rationing of livestock, export &/or ethanol corn use  Record low U.S. corn % stocks-to-use (≤ 5%)  Record high U.S. Corn $s in MY 2011/12 (≥ $6.50 /bu) B.2011 U.S. Corn Production a)2011 Planted & Harvested Acres? July 2011 NASS Northern Plains Survey of MN, ND, SD, Montana Late planting in Eastern Corn Belt (Ohio, Indiana, Michigan, etc.) River flood damage on the Missouri, Ohio, Mississippi & tributaries Likely a reduction in 2011 U.S. corn acres due to a combination of these factors (from 92.3 to 91.8 mln acres planted, or even lower?)

C ORN P RODUCTION IN 2011 B U.S. Corn Production (more) b)2011 Corn Yield Prospects? Slow development due to late spring planting (OH, MN, IN, KY, NE, KS, MI) → Fall 2011 corn maturity and/or freeze risk? High pressure weather system over central & eastern U.S. Corn Belt (July-early August) → Damage during key development stages? c)2011 Corn Production Prospects? Increasing likelihood of reduced projections of 2011 U.S. corn production (i.e., below bln bu in July USDA reports) → Would reductions be “marginal” (i.e., bb) or “major” (≤ bb)? Probability of U.S. Corn Production Outcomes for MY 2011/12  20% probability148.8 bu/ac bb U.S. Crop  50% probability153.0 bu/ac bb U.S. Crop  30% probability159.0 bu/ac bb U.S. Crop

C ORN U SE IN MY 2011/12 C.Corn Use: Is Price Rationing Occurring ? a)March-May 2011 Corn Use  16% vs 2010 o Feed use  44%, exports  8%, FSI  6% b)Exports “slow”: Total U.S. corn shipments  4% vs 2010 c)Livestock Feed Use: With  livestock $s, are livestock feeders better positioned to manage  corn $s? o Yes, BUT low feed use in March-May 2011 raises questions about potential rationing impact o U.S. GCAUs 94.3 million for MY 2011/12  Vs 92.9 mln in MY 2010/11 & 91.6 mln in MY 2009/10 d)Ethanol / FSI Use: Steady, buy/sell margin dependent o “ Walk’n the line ” of Blend Wall/RFS demand inelasticity

C ORN E NDING S TOCKS : MY 2011/12 D.Ending Stocks & %S/U: Will S/U be ≤ 5% ? a)Projected U.S. Corn Stocks-to-Use at/near Record Lows o 6.4% (23.5 days supply) for MY 2011/12 → 2 nd lowest since 1970 o 6.6% (24.1 days supply) for MY 2010/11 → 3 rd lowest since 1970 o 5.0% (18.3 days supply) for MY 1995/96 → Record low since 1970 b)Probability of U.S. Corn Supply-Demand Balance Outcomes for MY 2011/12 o 20% bb Crop 590 mb end stocks4.6% S/U**** o 50% bb Crop 660 mb end stocks5.0% S/U** o 30% bb Crop 825 mb end stocks6.1% S/U c)Low MY 2011/12 end stocks carrying into MY 2012/13 o Tight U.S. corn stocks persisting 1-2 years until Supply > Use

W ORLD C OARSE G RAINS S/D D.World Market: “Production issues ?” a)Sensitivity to Foreign Coarse Grain Supply-Demand o Crop Issues in Canada, Ukraine, Brazil o Increased China & Mexico import needs b)  World Coarse Grain Ending Stocks (July WASDE) 100%+ due to projected  U.S. Corn Production / Stocks o World End Stocks = mmt (12.9% S/U) → up 3.97 mmt o U.S. End Stocks = mmt → up 4.08 mmt o Non-US End Stks = mmt → dn 0.09 mmt  World Coarse Grain Ending Stocks for MY 2011/12 are vulnerable to potential reductions in 2011 U.S. corn & coarse grain production prospects!!! (4 mmt = 157 mb)

C ORN P RICE P ROSPECTS E.U.S. Corn Prices: Driven by S/D (+ other?) a)Probability of U.S. Corn S/U & Price Scenarios for MY 2011/12 o 20% 590 mb end stocks4.6% S/U$7.00-$8.00 /bu o 50% 660 mb end stocks5.0% S/U$6.10-$7.10 /bu o 30% 825 mb end stocks6.1% S/U$5.50-$6.50 /bu  Increasingly inelastic U.S. corn price responses as total corn supplies & Supply/Demand balances tighten b)Low Stocks → Inelastic Demand → Volatile/High $s o IF tight U.S. corn stocks persists 1-2 years until Supply > Use, THEN expect to have volatile corn markets through MY 2012/13 + c)Financial & Currency Market Effects on Corn $s??? o S/D factors (+USD$) determinate; specs in/out affects $volatility

U.S. C ORN S UPPLY -D EMAND ** USDA F EED O UTLOOK R EPORT : 7/14/2011 (E THANOL -DDGS S EPARATE )

U.S. C ORN U SAGE & E ND S TOCKS S EPARATION OF C ORN -E THANOL & C ORN -DDGS (USDA F EED O UTLOOK R EPORT, 7/14/2011)

MY 2011/12 U.S. C ORN S/D S CENARIOS L OW, M EDIUM & H IGH U.S. C ORN Y IELD S CENARIOS (W ISNER -O’B RIEN )

E CONOMIC F ACTORS A FFECTING U.S. G RAIN MARKETS

U.S. D OLLAR I NDEX M ONTHLY P RICE C HART (DX – NYBOT): M AY 2002– J UNE 2011 Index = 85 Index = 75 Range of $74-77 in July 2011 (74.41 on 7/22/2011)

U.S. D OLLAR I NDEX W EEKLY P RICE C HART ($ USD ): J ULY 2008 – J ULY 22, 2011

L IGHT C RUDE O IL P RICES W EEKLY P RICE C HART ($WTIC): J ULY 2008 – J ULY 22, 2011

C ONTINUOUS CRB I NDEX M ONTHLY I NDEX C HART ( CI – NYBOT ): M AY 2002 – J UNE 2011 Index = 650 Index = 550 Index = range in July 2011 ( on 7/22/2011)

B ALTIC D RY I NDEX W EEKLY P RICE C HART ($BDI): J ULY 2008 – J ULY 22, 2011 Indicator of the competitive market cost of buying space onboard ocean shipping vessels

D OW J ONES I NDUSTRIAL A VERAGE W EEKLY P RICE C HART ($INDU): J ULY 2008 – J ULY 22, 2011

F EEDGRAIN M ARKETS : C ORN & G RAIN S ORGHUM

U.S. C ORN % E ND S TOCKS -U SE MY 1985/86 THRU MY 2011/12 J ULY 12, 2011 USDA WASDE R EPORT

U.S. C ORN %S TOCKS /U SE VS P RICE $ MY 1973/74 THRU MY 2011/12 J ULY 12, 2011 USDA WASDE R EPORT

CBOT DEC 2011 C ORN F UTURES J ULY 21, 2010 THROUGH J ULY 22, 2011 $7.14 $5.96¾ Close of $6.85 ½ on July 22, 2011 High close of $7.14 on July 9 th 2011 Up since $5.96¾ on July 1 st 2011

CBOT C ORN F UTURES M ONTHLY : M AY 2002 THRU J UNE 2011 $7.50 $6.25 $5.75-$7.00 for July ($6.90 on 7/22/2011)

CBOT C ORN F UTURES M ONTHLY C ARRYING C HARGES & N EW C ROP T RENDS : J ULY 22, % of full carry 50% fc 44% fc

CFTC data through July 18, 2011; Used by permission of Dale Durchholz, Agrivisor

U.S. C ORN S UPPLY -D EMAND USDA WASDE R EPORT : J ULY 12, 2011

U.S. C ORN U SE & E ND S TOCKS MY 2004/05 THRU MY 2011/12 J ULY 12, 2011 USDA WASDE R EPORT

U.S. C ORN S UPPLY -D EMAND ** USDA F EED O UTLOOK R EPORT : 7/14/2011 (E THANOL -DDGS S EPARATE )

U.S. C ORN U SAGE & E ND S TOCKS S EPARATION OF C ORN -E THANOL & C ORN -DDGS (USDA F EED O UTLOOK R EPORT, 7/14/2011)

MY 2011/12 U.S. C ORN S-D S CENARIOS L OW, M EDIUM & H IGH U.S. C ORN Y IELD S CENARIOS (W ISNER -O’B RIEN )

U.S. G RAIN S ORGHUM S UPPLY -D EMAND USDA WASDE R EPORT : J ULY 12, 2011

U.S. M ILO U SE & E ND S TOCKS MY 2004/05 THRU MY 2011/12 J ULY 12, 2011 USDA WASDE R EPORT

E THANOL P RICE, C OST & P ROFITS ISU E THANOL P LANT M ODEL (J ANUARY 2005 – J UNE 2011)

CBOT SEPT 2011 E THANOL F UTURES J ULY 22, 2010 THROUGH J ULY 22, 2011 High close of $ on July 22, 2011 Up since $ /gal on June 30, 2011 Close of $ on July 22, 2011 $ $2.36

CBOT DEC 2011 E THANOL F UTURES J ULY 22, 2010 THROUGH J ULY 22, 2011 High close of $ on July 19, 2011 Up since $ /gal. on June 30, 2011 Close of $ on July 22, 2011 $2.18 $2.55

U.S. C ORN E THANOL - FSI U SE J ULY 12, 2011 USDA WASDE R EPORT

U.S. E THANOL I NDUSTRY C APACITY S OURCE : R ENEWABLE F UELS A SSOCIATION If E-15 is fully implemented by end of year 2015, then would need bgy U.S. Ethanol production capacity, using ≈ 7.5 bln bu of U.S. corn / year

W ORLD C OARSE G RAIN S-D MY 2007/08 THRU MY 2011/12 J ULY 12, 2011 WASDE R EPORT

C OARSE G RAIN E XPORTER S ALES MY 2009/10 THRU MY 2011/12 J ULY 12, 2011 USDA WASDE R EPORT

C OARSE G RAIN I MPORTERS MY 2009/10 THRU MY 2011/12 J ULY 12, 2011 USDA WASDE R EPORT

W ORLD C ORN %S/U: V IEW #1 W ORLD, U.S. & W ORLD LESS U.S. MY 1970/71-MY 2011/12 A.  U.S. S/U in mid-1980s was a major contributor to  World S/U B.  U.S. S/U since MY 2000/01 partly affected  World S/U A B

W ORLD C ORN %S/U: V IEW #2 W ORLD, C HINA & W ORLD LESS C HINA MY 1970/ /12 A B

W ORLD C ORN %S/U: V IEW #3 U.S., C HINA & W ORLD LESS B OTH MY 1970/ /12

CBOT D EC 1996 C ORN F UTURES H OW CORN MARKET RESPONDED TO TIGHT S / U IN SUMMER 1996 Strong move higher through early July Down/up thru July-Aug; Decline into fall Q. How likely is this corn price pattern in 2011?

Q UESTIONS ? Daniel O’Brien Extension Agricultural Economist Kansas State University Robert Wisner University Professor Emeritus Iowa State University Grain Market Analysis information is available on