How Will Ethanol Biofuels and Feed Grain Production Perform Through 2010?

As I walked the aisles of my local grocery store preparing for a weekend cookout, I noticed the increasing price of various food commodity items. This personal observation encouraged me to more closely examine the sector for 2009/10. After some research, I have laid out the feed grain commodities sector overview for 2009/10 which is obviously influenced by any demands for ethanol biofuels.

Acres to be planted in corn are expected to be down 1 per cent. Total feed grain supplies for 2009/10 are forecast down 1 per cent. However, strong domestic use of feed grains, boosted by a 9-per cent rise in corn used to make ethanol, is expected to keep feed grains ending supply very low, down 27 per cent from 2008/09. With plentiful supplies of distillers’ grains from ethanol production in 2009/10, feed and residual use is expected to total 141 million tons for the four feed grains, down from 145 million in 2008/09. Prices are expected to remain strong for all four feed grains but will be down from 2008/09, according to the US Department of Agriculture.

Corn use for ethanol in 2009/10 is growing increasing by 9.3% to 4.1 billion bushels, following an expected 24-per cent gain in 2008/09. This increase in corn used for ethanol reflects the rising Federal biofuels mandate and improved blending incentives as higher gasoline prices increase demand for ethanol. Ethanol producer returns, however, will remain under pressure as excess production capacity weighs on producer margins. Monthly ethanol production reported by the U.S. Department of Energy was at 647,000 barrels per day in February 2009 (the latest available data), helping boost first-half 2008/09 production to a record 4.9 billion gallons.

World coarse grain production in 2009/10 is projected to be down 1.5 per cent from the previous year’s record, but beginning stocks are up more than production is down, leaving global supplies large and slightly increasing. Use is expected to increase and exceed production, trimming projected ending stocks. Several governments, such as those of China, the EU, and Russia, are purchasing and storing grain to support producer prices, so foreign coarse grain stocks are forecast up fractionally while U.S. stocks drop.

World corn trade is expected to expand 5 per cent in 2009/10 as improved economic growth boosts demand for meat and increases feed demand. Competition in the corn export market is projected lower, mostly due to reduced production in Ukraine. The combination of slightly reduced competition and increasing world corn trade is projected to boost U.S. 2009/10 corn exports 4.5 million tons to 49.0 million (1.9 billion bushels for September-August).

Feed Grain Production Prospects Down in 2009/10

U.S. feed grain production for 2009/10 is projected at 323 million metric tons, down from 325.9 million in 2008/09. This year-to-year decrease steams from smaller projected planted and harvested area for corn, sorghum, and barley. Oats production is expected to increase from that in 2008 because of increases in planted and harvested acres, plus expected higher trend yields.

For the four feed grains combined, planted and harvested area is down in 2009/10, and yield is projected higher. Planted area is based on producer intentions reported in the March 31 Prospective Plantings. Harvested areas and yields are projected for corn, sorghum, barley, and oats (for more complete descriptions see the following sections for each commodity). Beginning feed grain stocks are 45.3 million tons in 2009/10, up slightly from 45.1 million tons in 2008/09. Total feed grain supply is projected at 371.1 million tons in 2008/09, down from 374 million in 2008/09.

Feed grain use is expected to increase 3 per cent in 2009/10, with higher projected ethanol production. Feed and residual use is expected to decline 3.9 million tons in 2009/10 to 141.1 million. High feed prices are expected to encourage more feeders to include distillers’ grains in their feeding rations. Exports are expected to increase from 48.1 million tons in 2008/09 to 52.3 million in 2009/10 as the global economy is expected to begin recovery. Food, seed, and industrial (FSI) use is projected at 144.5 million tons in 2009/10, up from 135.6 million in 2008/09, nearly all on increased corn use for ethanol. Ending feed grain stocks are projected to decrease 12.1 million tons from the 45.3 million in 2008/09. Prices are expected to remain strong but down from record highs in 2008/09.

Changes to 2008/09 Balance Sheets

Changes were made to corn and barley for the 2008/09 marketing year. Sorghum and oats remain unchanged this month for the 2008/09 marketing year. Corn used to make ethanol was increased 50 million bushels to 3.75 billion bushels, reflecting expectations for sharply higher ethanol production in March and April as indicated by weekly gasoline production data from the Energy Information Administration. Corn exports were also raised 50 million bushels to 1.75 billion, due to the pace of exports to date and outstanding sales. Forecasted season average barley prices were lowered.

Feed and Residual Use Down in 2009/10

The 2009/10 feed and residual use for the four feed grains plus feed wheat on a standardized September-August marketing year is projected at 145.9 million metric tons, down 3.53 million from the previous year. Feed and residual use per grain consuming animal unit (GCAU) is projected at 1.60 tons in 2009/10, unchanged from 2008/09. Total GCAUs are projected to be down 1.8 per cent over the period to 91.5 million. GCAUs are expected to be down because of reduced numbers of cattle and reduced sow farrowings as demand remains weak in the livestock sector.

The following is a breakdown of animal production estimates for calendar year 2010:

• Beef production is expected to be 26.1 billion pounds, down from 26.6 billion a year earlier.
• Pork production is projected at 22.6 billion pounds, down from 22.8 billion in 2009.
• Poultry production is forecast at 42.0 billion pounds, up from 41.3 billion pounds in 2009.
• Egg production is expected to be 7.6 billion dozen, up less than 1 per cent from 2009.
• Milk production is expected to be 186.8 billion pounds, down slightly from 2009.

Corn Production Forecast Down in 2009/10

The 2009/10 corn crop is projected at 12,090 million bushels, down from 12,101 million bushels a year earlier. This year-over-year change stems from a 1-millionacre expected decrease in planted area to 85 million acres. Planted area is from the Prospective Plantings report. Harvested acreage is based on estimated demand for silage based on roughage-consuming animal units (RCAU) and historical abandonment over 2005-08.

Partly offsetting the decline in area is a 1.5-bushel per acre year-to-year increase in yield. At 155.4 bushels per acre, the 2009 yield is projected 1.5 bushels per acre below the 1990-2008 trend based on the slower-than-average pace of planting in the eastern Corn Belt as reported in Crop Progress. The projected yield assumes a mid-May planting progress well below the 10-year average and just below last year’s delayed progress. In recent years, USDA has adjusted its linear trend yield forecast to reflect deviations from normal planting progress using an economic model that includes a trend variable, July rainfall and temperatures, and planting progress as of mid-May.

As of May 10, 2009, 48 per cent of the 2008 corn crop has been planted, which is unchanged from the same time last year and down from the 5-year average of 71 per cent. However, as last year’s planting pace shows, significant recovery in plantings can occur by mid-to-late May.

Beginning corn stocks for 2009/10 are forecast at 1,600 million bushels, down from 1,624 million in 2008/09. Total corn supply is expected to be 13,705 million bushels, down 35 million from 2008/09.

Total corn use is projected at 12,560 million bushels for 2009/10, up from 12,140 million for the current year. This year-over-year increase stems from increased exports and FSI use, however, projected feed and residual use is down. FSI use is projected at 5,410 million bushels, up from 5,040 million bushels expected in 2008/09. Increased ethanol production is driving the year-over-year increase. Exports for 2009/10 are projected at 1,900 million bushels, up 150 million from the previous year. Expected strong demand for corn and increased supplies of distillers’ grains are forecast to lower feed and residual use of corn in 2009/10. Corn feed and residual in 2009/10 is projected at 5,250 million bushels, down from the 5,350 million bushels expected to be used in 2008/09.

Ending stocks of corn for 2009/10 are projected at 1,145 million bushels, down from 1,600 million projected for 2008/09. Season-average corn prices for 2009/10 are projected at $3.70 to $4.50 per bushel, compared with the record $4.20 in 2007/08 and $4.10-$4.30 per bushel projected for 2008/09.

Food, Seed, and Industrial Use Prospects up in 2009/10

FSI use in 2009/10 is expected to increase 7 per cent from that of a year earlier. At the projected 5,410 million bushels, FSI will equal 43 per cent of total use, up slightly from an expected 42 per cent in 2008/09 and 34 per cent in 2007/08. High fructose corn syrup use is projected to be unchanged from the 470 million bushels expected to be used in 2008/09.

Glucose and dextrose use of corn in 2009/10 is expected to be 240 million bushels, up slightly from 236.9 million in 2008/09, which was up fractionally from 2007/08. In 2009/10, corn used to produce starch is expected to be 250 million bushels, up 6.4 per cent from expected starch use in 2008/09. As the economy begins to rebound into 2010, there is a projected strengthening of demand for construction materials and paper products.

World Coarse Grain Production in 2009/10 To Decline Slightly

While U.S. coarse grain production in 2009/10 is projected to slip 1 per cent from that of a year earlier, foreign production is expected to decline 2 per cent. A return to trend yields in the European Union (EU), Former Soviet Union (FSU), and China implies a decline from the previous year’s bumper yields. The assumed return to trend yields results in a small decline for foreign yields of rye, mixed grains, oats, barley, corn, and millet, but an increase for sorghum. Foreign area is little changed, up 0.2 per cent, with a decline in oats area more than offset by increases expected in sorghum and barley plantings. Foreign corn area is projected up fractionally. Coarse grains prices have declined from the record levels reached in the summer of 2008 but remain attractive enough to maintain area in many countries.

Foreign coarse grain production in 2009/10 is forecast to reach 758.5 million tons, down 13.8 million from the previous year. Foreign corn production is projected to reach 478.0 million tons, 2.4 million less than a year earlier; barley production is projected at 141.4 million, down 7.3 million; sorghum production is forecast up 1.9 million to 51.9 million; millet production is projected at 35.2 million tons, down 0.6 million; oats are projected at 22.9 million, down 2.5 million; and rye production is down 1.5 million to 15.6 million.

China is the leading foreign coarse grain producer, with 2009/10 production projected to reach 169.2 million tons, down 2 per cent. Corn production is expected to reach 162.5 million tons, down 3.0 million tons from 2008 despite a small increase in area. The government is purchasing corn to support producer prices and incomes, maintaining large area. A trend yield is down 2 per cent from the 2008 record.

Recovering Economic Growth To Help Boost Feed Use

Macroeconomic growth is assumed to return or increase in many countries in 2010, boosting demand for meat and derived demand for feed grains for animal feed. Global coarse grain use for 2009/10 is projected up 2 per cent to 1.09 billion tons. Foreign feed and residual use of coarse grains is projected to grow 7.6 million tons, or 1.5 per cent, in 2009/10 to 507.4 million tons. Other uses by foreign countries, mostly food and industrial use, are projected up 6.0 million tons to 299.9 million tons.

China is projected to increase coarse grain use 5.8 million tons to 166.0 million during 2009/10. Most of the increase is in feed use, as meat demand is expected to continue to grow. Coarse grain use in North Africa and the Middle East is projected up 2.0 million tons to 47.2 million, as domestic barley production increases in many countries and meat production expands. Brazil is expected to increase coarse grain feed use 2 per cent to 40.1 million tons, mostly corn, as meat exports begin to rebound in 2009/10. India’s coarse grain use is projected up 1.9 million tons to 38.4 million due to increased production and growing feed use. A rebound in feed use is expected to help Canada’s coarse grain use increase 1.1 million tons to 24.0 million tons. Increased production is supporting increased food use in Sub-Saharan Africa.

Growth in coarse grain use is slowed by stagnant use in countries like the EU, Japan, and South Korea where meat production industries are mature. Projected use is down 1.8 million tons to 55.6 million in the FSU due to sharply reduced production.

U.S. Corn Exports Projected up 10 per cent in 2009/10, 2008/09 up too

Foreign corn exports in 2009/10 are expected to decline 0.5 million tons to 31.9 million, as reductions in Ukraine and South Africa more than offset increases in other countries. The combination of slightly reduced competition and increasing world corn trade is projected to boost U.S. corn exports 4.5 million tons to 49.0 million.

U.S. corn exports for 2009 are up 0.5 million tons this month to 44.5 million. Recently, export sales and shipments of corn have increased. Census export data for March 2009 showed an increased pace, leaving October-March corn shipments at 21.1 million tons. April grain inspections were nearly as large, reaching 3.9 million tons, leaving exports in the first half of 2008/09 at about 25.0 million tons. Recent reports boosted outstanding export sales at the end of June 2009 to over 11.0 million tons, supporting the increased forecast.

Comments

[Mentor:]

It's a nice analysis, but from mid 2010, the situation will be worse. The food shortage, unability or hesitation of public and private to invest in agriculture, current under application of fertilizers: Potash application is falling by almost 40%, Phosphate by 25% and Nitrogen by 5-10%, The current prices decrease of phosphate and nitrogen is not stimulating the demand, but it's devaluating the market. Potash is still above $700.00 with no demand; China and India have not yet concluded their potash contracts.
Crop yields are declining in all parts where there are biggest grain producers due to drought and underapplication of fertilizers. The soil quality is depreciated.
After destocking crops of 2007 and 2008 that were record years, 2010 can be a food crisis.

Jun 04 07:04 AM

[NY Operator:]

I agree that there is going to be significant pressure on the world's grain supplies over the next few years. I read the other day the US corn supply is down to just over a month. If you like ethanol or not, it is here to stay and will consume 30% of the US corn production.

Another member linked to this blog in another message. There is an interesting article on how to make money of the increased demands for grain:

farmlandforecast.colvi...

Jun 06 07:20 PM