1. 2011 Grain Market Outlook
Iowa Corn Growers Association & Iowa Corn Promotion Board
Des Moines, Iowa
Mar. 22, 2011
Chad Hart
Assistant Professor/Grain Markets Specialist 1 1

2. U.S. Corn Supply and Use 2007 2008 2009 2010 Area Planted (mil. acres)
93.5
86.0
86.4
88.2
Yield
(bu./acre)
150.7
153.9
164.7
152.8
Production
(mil. bu.)
13,038
12,092
13,092
12,447
Beg. Stocks
1,304
1,624
1,673
1,708
Imports 20 14 8
Total Supply
14,362
13,729
14,774
14,175
Feed & Residual
5,913
5,182
5,140
5,200
Ethanol
3,049
3,709
4,568
4,950
Food, Seed, & Other
1,338
1,316
1,371
1,400
Exports
2,437
1,849
1,987
1,950
Total Use
12,737
12,056
13,066
13,500
Ending Stocks
675
Season-Average Price
($/bu.)
4.20
4.06
3.55
5.40
Stocks continue to shrink. But even with national yields down to bushels per acre, we’re still looking at the 3rd largest corn crop ever. But it’s relatively short due to the strong demand for corn. Demand jumped in the 1st quarter of the 2010 marketing year as old crop corn was blended and used. Ethanol demand is projected to continue to exceed the Renewable Fuels Standard. That’s enough to push stocks-to-use to 5.0%, the lowest level since And push prices higher with USDA at the $5.40 level for an average 2010/11 price.
Source: USDA 2 2

3. U.S. Soybean Supply and Use
2007
2008
2009
2010
Area Planted
(mil. acres)
64.7
75.7
77.5
77.4
Yield
(bu./acre)
41.7
39.7
44.0
43.5
Production
(mil. bu.)
2,677
2,967
3,359
3,329
Beg. Stocks
574
205
138
151
Imports 10 13 15
Total Supply
3,261
3,185
3,512
3,495
Crush
1,803
1,662
1,752
1,655
Seed & Residual 93
106
108
110
Exports
1,159
1,279
1,501
1,590
Total Use
3,056
3,047
3,361
3,355
Ending Stocks
140
Season-Average Price
($/bu.)
10.10
9.97
9.59
11.60
For soybeans, the January USDA reports knocked the 2010 crop behind So we just had the 2nd largest soybean crop we’ve ever produced. Soybean crush, seed, and residual demand were slightly reduced. Soybean export demand remains at record pace. But the drop in supplies is enough to lower 2010/11 ending stocks. Prices are up, with USDA at $11.60 per bushel for the 2010/11 marketing year.
Source: USDA 3 3

4. World Corn Production Source: USDA
La Nina and the dry conditions in Argentina are beginning to show in the USDA numbers for South America. USDA pulled their Argentina corn estimate down 6 percent from last month and the reports from Argentina suggest we’ll see further reductions in the future.
Source: USDA 4 4

5. World Soybean Production
It’s the same story for soybeans.
Source: USDA 5 5

6. La Niña Winter El Niño Neutral La Niña Source: NOAA
La Nina will shape the crop outlook for South America, with concerns about the possibility of drought in the major crop production regions. Those concerns are finally showing up in production estimates.
Source: NOAA 6 6

7. Hog Crush Margin
The Crush Margin is the return after the pig, corn and soybean meal costs.
Carcass weight: 200 pounds Pig price: 50% of 5 mth out lean hog futures
Corn: 10 bushels per pig Soybean meal: 150 pounds per pig
Hogs had a decent 2010, following the tragedies of 2008 and The outlook remains good for the next couple of months, but margins weaken in the middle of the year. Expansion is not likely.
Source: Shane Ellis, ISU Extension

8. Cattle Crush Margin
The Crush Margin is the return after the feeder steer and corn costs.
Live weight: pounds Feeder weight: 750 pounds
Corn: 50 bushels per head
Cattle also had a decent And the story is very similar to hogs.
Source: Shane Ellis, ISU Extension

9. Corn Export Sales Source: USDA, FAS
Corn exports are up slightly, but the last few weeks have been disappointing.
Source: USDA, FAS

10. 2010 U.S. Corn Exports Source: USDA, FAS
The typical players are in the market and we’ve had a few surprises (China in the market, Egypt ramping up quickly).
Source: USDA, FAS

11. Corn Export Shifts Source: USDA, FAS
The Japanese market improving and Egypt has increased its purchases from last year, but Mexico, South Korea, and Taiwan are off. Overall, we’re still nearly 7% above last year.
Source: USDA, FAS

13. Corn Advance Export Sales
And demand continues to build for the upcoming crop.
Source: USDA, FAS

14. Soybean Export Sales Source: USDA, FAS
We’re still on record pace for soybean exports, but like with corn, the gap is narrowing.
Source: USDA, FAS

15. 2010 U.S. Soybean Exports Source: USDA, FAS
China remains the dominant market. And any market that relies so strongly on one buyer becomes very sensitive to news in that market. The trade is watching how China is handling its inflation issue.
Source: USDA, FAS

16. Soy Export Shifts Source: USDA, FAS
But so far, Chinese sales are still up over 100 million bushels and we continue to see some growth in other areas (Mexico and Indonesia).
Source: USDA, FAS

17. Soy Advance Export Sales
China has also led the charge to buy 2011 soybeans.
Source: USDA, FAS

18. Renewable Fuels Standard (RFS)
Crop
Year
Billion Bushels
2009
4.11
2010
4.43
2011
4.64
2012
4.86
Biofuels, especially ethanol, are still a major market driver. The Renewable Fuels Standard (RFS) outlines the government’s minimum levels for blending and use. The RFS points to 4.43 billion bushels of corn for ethanol out of the 2010 crop. USDA is currently at 4.9 billion bushels. So corn demand via ethanol is holding above the government requirement as production and blending margins have been positive for some time. 18 18

19. Ethanol Margins Source: ISU, CARD
The graph breaks ethanol prices into costs and returns on a per gallon basis. Yellow is energy costs to create a gallon of ethanol. Maroon is corn costs (less distillers grains value) to create a gallon of ethanol. Blue is all other costs and returns. The black line is a rough measure of breakeven for the industry. The high returns in 2005 and 2006 spurred on ethanol development.
Source: ISU, CARD

20. Ethanol Margins Source: ISU, CARD
And futures prices indicate positive margins may last through 2011 and But higher corn prices could squeeze those margins.
Source: ISU, CARD

21. Ethanol Blending Advantage
As you compare the prices of a gallon of E10 to a gallon of regular unleaded gasoline, you see that E10 has offered fuel blenders a price advantage for most of the past four years. In fact, for most of the time, the advantage exceeded the tax credit of 4.5 cents per gallon. And the recent run-up in gas prices, has opened up the blending margin. If margins fall, we could see ethanol plants back off of production and shut down, like we saw in late 2008 and early 2009.

22. Ethanol Blending Advantage
As you compare the prices of a gallon of E10 to a gallon of regular unleaded gasoline, you see that E10 has offered fuel blenders a price advantage for most of the past four years. In fact, for most of the time, the advantage exceeded the tax credit of 4.5 cents per gallon. And the recent run-up in gas prices, has opened up the blending margin. If margins fall, we could see ethanol plants back off of production and shut down, like we saw in late 2008 and early 2009.

23. Fuel Prices
The relative pricing between gasoline and ethanol will be key for ethanol’s continuing growth. 23 23

24. Projected 2010 Season-Average Corn Price
As the crop got smaller and the demands got larger, projected stocks were reduced and prices headed north. Both the futures market and USDA have been north of $5 for corn for the last few months.

25. Projected 2010 Season-Average Soy Price
Similar stock tightness has allowed soybean futures to go into the teens and put the season-average price near the $12 range.

26. Projected 2011 Season-Average Corn Price
The pressure’s on for 2011.

27. Projected 2011 Season-Average Soy Price

28. Corn
The last few years have changed that relationship. Crop prices are now much more responsive to tighter stocks.

29. Iowa Corn Prices vs. Costs
Margins look good for the 2010 and 2011 crops. But costs will likely catch us in 2012.

30. Iowa Soybean Prices vs. Costs
Returns are also very strong for soybeans.

31. Principal Crop Area Source: USDA-NASS
Given crop prices, I expect to see a recovery in principal crop area, like we saw in 2007/08.
Source: USDA-NASS

32. States with Room to Grow
Million acres
Competing Crops
North Dakota
2.249
Wheat, corn, soy
South Dakota
1.400
Missouri
0.930
Rice, cotton, soy
Arkansas
0.715
Illinois
0.535
Texas
0.466
Cotton, corn, soy
Georgia
0.395
Mississippi
0.284
Cotton, rice, soy
North Carolina
Louisiana
0.283
And these are the states that have room to expand.

33. New Crop Futures Price Movements
Wheat
Corn
Soybeans
Cotton
MGE Sept.
CME Dec.
CME Nov.
ICE Dec.
($/bu.)
($/lb.)
June 1
5.81
4.04
9.22
0.75
Mar. 18
8.82
5.99
13.34
1.24
Change
52%
48%
45%
64%
And it’s not just corn and soybeans looking for acreage.

34. Projected Crop Margins

35. Thoughts for 2011 and Beyond
General economic conditions
Continued economic recovery is a major key for crop prices
Japanese earthquake and tsunami have shaken those prospects
Supply/demand concerns
92 million acres of corn and 78 million acres of soybeans?
South America: La Niña impacts (Argentina , Brazil )
Biofuels: E15; Ethanol & Biodiesel tax credits renewed
Will supply be able to keep pace with demand?
2010/11: USDA: Corn $5.40, Soy $11.60
Futures (as of 3/18/2011): Corn $5.36, Soy $11.67
2011/12:
Futures (as of 3/18/2011): Corn $5.83, Soy $12.83

36. Thank you for your time. Any questions. My web site: http://www. econ
Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: