sealPurdue News

March 1996

Corn-fed bull still rages through markets, economists say

WEST LAFAYETTE, Ind. -- Continuing demand for livestock feed while supplies are critically short is sustaining the bull-market stampede on corn prices, say two agricultural economists.

But while Ohio State agricultural economist Allan Lines says the bulls may be starting their retreat, Purdue ag economist Bill Uhrig says even higher corn prices may be needed to curtail corn usage.

Lines says a historically significant $4-per-bushel corn price is still possible during this crop marketing year. To be safe, though, Lines says farmers can protect themselves by selling some of their corn at current prices.

Lines says $3.50-per-bushel corn prices have failed to slow feedgrain demand. Red meat and poultry production are expected to be up by 3 percent to 4 percent over 1995. Egg production is expected to rise 3 percent, and milk production is up 2.5 percent.

"It is difficult to swallow the proposition that it is possible to produce that much more and use less corn than last year," Lines says. "The staging for higher prices remains in place."

Uhrig says that based on the U.S. Department of Agriculture's Dec. 1 grain stocks report, corn usage will exceed supplies by more than 900 million bushels.

"The key question is whether prices are high enough to accomplish the rationing," Uhrig says. "The answer may lie in the grain stocks report to be released March 29." Uhrig says a surge in prices is needed to shock buyers into making decisions to cut usage.

A large livestock inventory devouring feedgrains is offsetting a small decline in industrial corn uses, according to OSU's Lines. Ethanol producers balked at the higher prices, but livestock producers did not, as evidenced by the second-largest reduction of national corn stocks on record during the last quarter of 1995.

The tight supplies are due to a poor 1995 crop year that produced 7.37 billion-bushels, down 27 percent from the 1994 record of 10.1 billion bushels. The national average yield was 113.5 bushels per acre, down 25 bushels per acre from 1994.

Latest USDA estimates show Ohio's corn production dropped 23 percent, from 487 million bushels in 1994 to 375 million bushels last year. Yields dropped from 139 bushels per acre to 121. Indiana's corn production dropped 30 percent from 858 million bushels in 1994 to 599 million bushels last year. Yields dropped from 144 bushels per acre to 113 bushels per acre.

Booming exports also continue to drain supplies, Lines says. If the current export pace continues, USDA projections are for a 500 million bushel corn-supply shortfall, he says." There are no reserves, domestic or global," he says.

However, the market appears to be softening. Speculators have moved to the sidelines, and farmers may send grain to the elevator this month to pay tax bills and other expenses, Lines says.

Expect dramatic market swings with any news of production problems here or abroad, he says. Farmers uneasy about holding grain should consider selling now, and buying a "call" option for future price rises. "If you are uneasy about pricing some of your new crop, consider buying a 'put' to secure downside protection," Lines says.

As for soybeans, a 15 percent drop in 1995 production has reduced supplies in storage to 190 million bushels, creating a tight domestic situation, Lines says. World oilseed stocks also are at a decade low.

Uhrig, meanwhile, expects soybean exports to increase, and he anticipates a small rise in the "crush," the amount of soybeans processed for oil. That combination of factors would further deplete the soybean supply.

The USDA lowered its latest 1995 soybean production estimate by 31 million bushels, down to 2.15 billion bushels. This compares to last year's record 2.52-billion-bushel crop.

Lines says he expects soybean prices to average between $7 and 7.25 per bushel for the 1995 crop. He adds that markets could strengthen with production problems in South America or in the United States.

Latest USDA estimates show that Ohio's soybean production dropped nearly 12 percent from 174 million bushels in 1994 to 153 million bushels last year. Yields decreased from 43.5 bushels per acre to 38. In Indiana, soybean production dropped almost 10 percent from 215 million bushels in 1994 to 194 million bushels in 1995. Yields dropped from 47 bushels per acre to 39.

Similarly low yields in beans and corn this year could be devastating to livestock producers, according to Uhrig.

"With the low level of ending stocks, it is important that U.S. farmers produce above-average crops in 1996. Another short-crop year would send commodity prices to record levels and devastate livestock production," he says. "This would lead to higher food prices in later years. There is little margin for error."

Sources: Bill Uhrig, (765) 494-4308; Internet,
Allan Lines, (614) 292-5926; Internet,
Writer: Amy H. Raley, (765) 494-6682; Internet,
Purdue News Service: (765) 494-2096; e-mail,

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