Tuesday, July 20, 2010
Corn And Bean Supply And Demand. Where Is It Headed In The Coming Decade?
Commodity prices and demand are the bottom line for profitability in any operation, and the past four years have brought bullish markets, a recession, and now a bushel of market dynamics that Dad certainly never told you about. If typical supply and demand factors return to the markets, what will happen to the corn and soybean markets over the next 10 years?Polishing off their commodity price crystal ball are ag economists Richard Taylor and Won Koo from North Dakota State University, who have prepared an outlook for corn and bean markets in the coming decade. With little surprise, they see ethanol as the 800 pound gorilla, but if the government does something to cage the gorilla, then corn price stability begins to wane. Taylor and Koo use an econometric model that assumes corn prices will range from $3.70 to $4.10, China will continue to be a significant soybean buyer, Brazil and Argentina will increase their corn and bean exports, and beans will remain about $9.70 per bushel. With those assumptions, turn on the computer and let’s see what will happen to Cornbelt farmers.
Taylor and Koo say world corn trade will increase 13% over the coming decade, with US exports remaining steady and increasing numbers being exported by Brazil and Argentina. At the same time world soybean trade will increase 66% with China buying increasingly larger amounts. US bean exports will also remain flat, while the larger demand will be supplied from South America. Statistically, US corn and soybean exports will only increase about 1.5% each, while Argentina will expand soybean exports by over 300% and Brazil by 83%. Brazilian corn exports will expand by 62% and Argentine exports by 40%. By 2019, China will be importing 1.1 billion bushels of corn and 2.2 billion bushels of soybeans. By 2012 Brazil will overtake the US in soybean exports and the US will shift to third place behind Argentina sometime shortly after 2020.
In the coming decade, world corn production will grow from 48 billion bushels to 53 billion, with US production up 12% and Argentina up 10%. While Chinese corn production will increase 9% to 6.1 billion bushels by 2019 it will not be enough to satisfy needs. In the US, production will decline slightly through 2014, and then resume its upward climb. By 2019, US corn production will be just over 14 billion bushels and US soybean production will be 3.4 billion bushels. China will see a 50% increase in soybean production, but not enough to meet demand. While Argentina will increase its soybean production by nearly 60% in the coming decade, it will only have production about 70% of US production, and Brazilian production will still be less than 90% of US soybean production.
Even though US exports are not expected to increase much, where will the US get the capacity to increase its overall corn production to meet ethanol demand? Ag economists Taylor and Koo say corn yields will increase in all US regions except for the south. To achieve a 9% increase in corn production by 2019, they say the fastest growth is expected to be in Indiana (20%), followed by Nebraska (14%), and Illinois (12%). Specifically, they are forecasting corn yield increases in excess of 17% for IN and IA, 14% for MN, and 12% for IL.
And for soybean production to increase enough to meet demand, Taylor and Koo say, the fastest increase in soybean production is projected to be in the West region (36%), followed by Nebraska and Minnesota. Specifically, that is a 23% yield increase for NE, 14% for IA, and more than 10% each for IN and IL.
Regarding corn utilization, ethanol will consume 4.8 billion bushels under their scenario by 2019, while feed use will need 6.0 billion and exported corn will vary from 1.4 billion to 2.1 billion bushels. Soybean utilization will see exports remaining between 1.2 and 1.3 billion bushels, and domestic processing increasing 16% to 2.0 billion bushels by 2019.
Summary:
Over the course of the next decade, world demand for corn and beans will remain strong helped by a weaker dollar against other currencies. The US will have the most corn to export, but ethanol and feed will require large domestic supplies. The ethanol industry will grow, but will be held back by lower profitability. Chinese demand for corn and beans will continue to grow, but most of the demand will be supplied by South America. Corn prices will increase slightly, but soybean prices will remain flat.
Posted by Stu Ellis on 07/20 at 01:02 AM | Permalink