Demand for U.S. corn benefited from a significant “growth spurt” beginning with 2007-08 crop year and continued through 2011-12, but that five-year boom now appears to be over, according to Dr. Darrell Good, agricultural economist at the University of Illinois.
His recent report analyzed the demand for corn for ethanol, livestock and poultry, exports, and other markets. Good indicates the growth in the U.S. corn industry appears to have especially peaked because the domestic ethanol market has hit the E10 blend wall. Any further growth in the use of corn for ethanol will be dependent on consumption of higher ethanol blends, he added.
Good noted that the domestic livestock industry is mature and may require larger exports of meat production if growth is to grow in the future. Also, the corn export market has become much more competitive in the past several years as high corn prices have stimulated an increase in world production and, therefore, competition in the world market.
If the size of the U.S. corn market has peaked, as Good believes, there will likely be a period of lower prices and reduced acreage. Lower prices would be beneficial for the livestock industry, at least initially, he added. Further, lower crop farm incomes might result in some downward pressure on farm land prices, particularly if interest rates continue to increase. At the same time though, Good realizes many corn producers are hoping for a surprise development on the demand side. Lower companies likely will result in fewer acres planted to corn in the future.
Looking at the feed and residual use of U.S. corn, the analysts noted that this market has gradually declined since 2007-08, from a peak of over 6.1 billion bushels in 2004-05 and 2005-06, consumption declined to just over 4.5 billion bushels in 2011-12. The primary reason for the decline was the rapid substitution of distillers grain, the co-product of ethanol production, for whole corn in livestock feed rations. The number of livestock being fed in the United States, as measured by the USDA’s estimate of grain consuming animal units, has been relatively constant since 2004-05. USDA is projecting little change in grain consuming animal units for 2013-14. The domestic market for meat and livestock products is mature. Slow population growth and stable per capita meat consumption suggests that feed consumption will also stabilize.
Without growth in ethanol production and a resulting increase in production of distillers grain, corn feed consumption would be expected to also stabilize near recent levels. The potential for an increase in livestock production and a related increase in corn feeding probably lies with the potential for an increase in livestock exports. That potential is likely the highest for pork exports to China, Good explained.
Foreign corn production has increased from about 16 billion bushels in 2004-05 to 23 billion bushels in 2012-13, an increase of 44 percent. Also, foreign exports grew from about 1.2 billion to near 3 billion bushels, an increase of 150 percent. The larger exports were mainly from Brazil and the Ukraine. Lower U.S. corn prices may slow the increase in foreign corn production and also allow U.S. corn to be more competitively priced. However, the production capacity that has been put in place in the rest of the world will likely persist, making it difficult for the United States to rebuild exports. Larger U.S. exports than are occurring this year are expected beginning in 2013-14, but returning to annual sales of two billion bushels will likely require more significant growth in foreign consumption than is now being projected. Similar to livestock export prospects, growth in U.S. corn exports may be dependent on Chinese demand, Good concluded.
