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2011 Grain/Feed Market Outlook
ISU Ag. Extension In-Service Ames, Iowa Mar. 23, 2011 Chad Hart Assistant Professor/Grain Markets Specialist 1 1
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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 $5.40 level for an average 2010/11 price. Source: USDA 2 2
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U.S. DDG Supply and Use 2008 2009 2010 Production (mil. metric tons) 26.5 33.1 35.9 Imports 0.3 0.4 0.5 Total Supply 26.8 33.5 36.4 Domestic 21.8 25.2 26.1 Exports 5.0 8.3 10.3 Total Use Average Price ($/ton) 122 113 150 My estimates, so take with a grain (or pound) of salt 3 3
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Feed Pricing Source: USDA
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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 $11.60 per bushel for the 2010/11 marketing year. Source: USDA 5 5
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U.S. Soybean Meal Supply and Use
2008 2009 2010 Production (thou. short tons) 39,102 41,700 39,583 Beg. Stocks 294 235 302 Imports 88 160 165 Total Supply 39,484 42,095 40,050 Domestic 30,752 30,619 30,500 Exports 8,497 11,175 9,250 Total Use 39,249 41,794 39,750 Ending Stocks 300 Season-Average Price ($/short ton) 331.17 311.27 355.00 Source: USDA 6 6
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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 7 7
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World Soybean Production
It’s the same story for soybeans. Source: USDA 8 8
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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 9 9
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Corn Export Sales Source: USDA, FAS
Corn exports are up slightly, but the last few weeks have been disappointing. Source: USDA, FAS
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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
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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
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Corn Advance Export Sales
And demand continues to build for the upcoming crop. Source: USDA, FAS
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DDG Exports Source: USDA
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DDG Exports So Far This Year
Source: USDA
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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
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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
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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
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Soy Advance Export Sales
China has also led the charge to buy 2011 soybeans. Source: USDA, FAS
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Soybean Meal Export Sales
We’re still on record pace for soybean exports, but like with corn, the gap is narrowing. Source: USDA, FAS
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2010 U.S. Soybean Meal Exports
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
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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. 23 23
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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
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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
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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.
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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.
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Fuel Prices The relative pricing between gasoline and ethanol will be key for ethanol’s continuing growth. 28 28
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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.
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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 $12 range.
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Projected 2011 Season-Average Corn Price
The pressure’s on for 2011.
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Projected 2011 Season-Average Soy Price
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Corn The last few years have changed that relationship. Crop prices are now much more responsive to tighter stocks.
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Iowa Corn Prices vs. Costs
Margins look good for the 2010 and 2011 crops. But costs will likely catch us in 2012.
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Iowa Soybean Prices vs. Costs
Returns are also very strong for soybeans.
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Principal Crop Area Source: USDA-NASS
Given crop prices, I expect to see a recovery in principal crop area, like we saw in 2007/08. Source: USDA-NASS
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States with Room to Grow
Million acres Competing Crops North Dakota 2.249 Wheat, corn, soy South Dakota 1.400 Missouri 0.930 Rice, cotton, soy Arkansas 0.715 Illinois 0.535 Texas 0.466 Cotton, corn, soy Georgia 0.395 Mississippi 0.284 Cotton, rice, soy North Carolina Louisiana 0.283 And these are the states that have room to expand.
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New Crop Futures Price Movements
Wheat Corn Soybeans Cotton MGE Sept. CME Dec. CME Nov. ICE Dec. ($/bu.) ($/lb.) June 1 5.81 4.04 9.22 0.75 Mar. 22 8.83 6.12 13.44 1.24 Change 52% 46% 65% And it’s not just corn and soybeans looking for acreage.
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Projected Crop Margins
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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 3/22/2011): Corn $5.37, Soy $11.68 2011/12: Futures (as of 3/22/2011): Corn $5.96, Soy $12.93
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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:
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