Farm News
06-15-07
Grain, weather outlooks offer mixed prospects
By Darcy Dougherty Maulsby, Farm News staff
As global grain supplies continue to tighten, pork producers at this year’s World
Pork Expo in Des Moines were glad to hear that 2007 may not be the year of the
next big drought.
“Drought tends to come every 19 years, and our longest period without a major
drought is 23 years,î” said Elwynn Taylor, an Iowa State University Extension
climatologist who spoke at Expo on June 8. “I don’t think a major, widespread
drought will occur this year, but if we go past 2011 without one, we’ll break an
800-year-old record.”
Based on the ample amount of pre-season soil moisture, the El Nino/La Nina
weather patterns remaining neutral and a host of other factors, Taylor believes
there’s only a 20 percent chance that corn will yield an average of less than 134
bushels per acre, pushing December corn futures to $5.77 per bushel. “One of
the most likely scenarios for 2007 is 154 bushels per acre with December futures
at $3.23,î” Taylor said, who added that there’s a 30 percent chance of 171
bushels per acre and prices of $2.09 at harvest.
Pay attention to growing degree days (GDD) to get a clearer picture as the
growing season progresses. In 2007 GDDs have exceeded the norm each week
since April 28. “This happened in 1994, 2002 and 2004, years when we had
record high corn yields,” Taylor said.
Striking a balance
Although it appears that 2007 may be on track for a bumper crop, pork producers
aren’t risk-free when it comes to feed costs. “The potential for a great deal of
volatility in the markets remains, especially if weather becomes a concern,” said
Bob Wisner, an Iowa State University grain economist.
As always, feed costs will be closely linked to grain supplies. While pre-season
estimates projected a 12-million-acre increase in corn, Wisner questions whether
the entire 90.5 million acres in the USDA’s Projected Plantings report got
planted, due to this spring’s weather challenges. USDA’s June 29 acreage report
will provide a clearer assessment, he said.
Wisner’s current projection for the U.S. corn yield totals 150.5 bushels. His
estimate was influenced by late planting in many areas, especially in the western
Corn Belt, as well as the location of additional corn acres coming into production
in 2007. “The Dakotas have had yields of 115 bushels per acre during the last
three years, while the large chunk of corn acres in the cotton/rice regions of the
South have yielded 127 bushels per acre during the last three years,” he said.
The June 29 acreage report is especially important in light of tightening feedstock
supplies around the globe. In Iowa alone, total corn processing equates to 2.92
billion bushels, the equivalent of 142 percent of last year’s corn crop in Iowa. To
meet Iowa’s total feed and processing needs (including ethanol) while
maintaining exports, farmers would need to produce at least 322 bushels of corn
per acre, Wisner said. “The big question is whether the U.S. livestock industry
will be able to compete with exports or whether exports will come on stronger
than the livestock industry.”
China remains one of the big wild cards. While the Asian nation has been the
second (and sometimes third) largest corn exporter in the world, there’s talk that
it may become a corn importer. “If that happens, we’ll need more corn. Also, what
happens in a drought year when corn supplies are down?” Wisner asked. “For
pork producers it all means a much bigger task of managing risk.”
Where will the acres come from?
If demand for corn shows few signs of slowing down due to the booming U.S.
biofuels industry, where will the supply come from? “We’re about halfway of
where we need to be with U.S. corn acres,” Wisner said. “If we want more corn
acres, they will have to come from other crops.”
Realize, too, that the domestic biofuels industry isn’t the only one to watch when
it comes to global grain supplies. Other countries with ethanol fuels include
Canada, China, the EU and Thailand, while countries considering ethanol fuels
include South Africa, Ukraine and Japan.
While a number of factors could alter the pattern of tightening global grain
supplies, including a crude oil price collapse, the removal of the U.S. ethanol
import tax, accelerated corn yield increases, a decline in global livestock feeding,
reducing or making the 51-cent U.S. blending credit variable, or an early
breakthrough in the economical conversion of cellulose for ethanol, Wisner
doesn’t see many of these factors playing out.
He is, however, keeping an eye on alternative feedstocks such as biomass,
sweet sorghum, sugar beets and high-oil crops, which raise questions of which
crops will become viable players in the biofuels sector and how soon will this
occur? Don’t overlook rising concerns about the environmental effects of cornon-corn acres and farming erosion-prone land, he added.
Finally, although the biofuels industry has become a driving force in the U.S. ag
industry, the livestock sector remains critical. While a 100-million-gallon ethanol
plant may use 37 million bushels of corn and employ 80 workers directly, those
same 37 million acres of corn can support 800 direct jobs in the farrow-to-finish
swine industry, Wisner said. “Somehow we need a balance between biofuels and
livestock.”