Corn Commentary

World Corn Supply and Ethanol Demand

USDA’s World Agricultural Supply and Demand Estimate (WASDE) out this week reported a big increase in the Chinese corn crop, raising total global grain production this year to nearly 2706 million metric tons, the second-largest on record.

Global 2012/13 corn production is raised 9.4 million tons with China corn output up 8.0 million tons based on recent estimates from the National Bureau of Statistics. Strong price incentives to expand corn plantings and favorable summer rainfall, particularly in the northeast provinces, support increases in area and yields raising them to new records. Corn production for Canada is raised 1.5 million tons this month to a new record on higher yields and a record area as reported by Statistics Canada. Russia corn production is raised 1.0 million tons, also a new record.

There were offsets to those increases, particularly in Argentina and Ukraine, so global ending stocks are still expected to be lower and USDA maintained corn ending stocks in the U.S. for the marketing year at a tight 647 million bushels.”The drought reduced production by four billion bushels from what we thought earlier this year,” said USDA Chief Economist Joe Glauber. “No question that’s rationed demand and we’ve seen a really tight stock situation.”

The new forecast lowered the season average corn price estimate by 20 cents to $7.40 per bushel, which Glauber says has tightened margins for ethanol producers this year. “If you look at ethanol production, it’s been below 13 billion gallons on an annualized basis, if you look at weekly production numbers, and that reflects the lower margins for sure,” he said. Corn use for ethanol is forecast at 4.5 billion bushels, 10% lower than last year.

However, if you consider the fact that ethanol production returns about a third of that corn in the form of distillers grains to the livestock market, the Renewable Fuels Association (RFA), notes that the U.S. ethanol industry is projected to use only 78.9 million metric tons of grain or less than three percent of the world grain supply – the lowest rate in five years. “Further, more grain will be available for non-ethanol use than any other time in history with the single exception of last year,” said RFA Vice President, Research and Analysis Geoff Cooper. “In fact, grain available for non-ethanol use in 2012/13 will be 15% higher than 10 years ago in 2003/04.”

This is all important because it illustrates several important points:
1. Farmers are more productive than ever, despite weather challenges.
2. Markets respond to higher prices by rationing demand and increasing production.
3. The world is producing enough corn for food, feed, and fuel demands.