August 7, 2000
HOW MUCH CORN CAN WE CONSUME?
It is generally expected that the
2000 U.S. corn crop will be near record or record large. Private
estimates tend to be in the 10.2 to 10.3 billion bushel range.
The USDA will release the first objective production estimate
on August 11. While the crop is not yet in the bin, market attention
is beginning to shift to the question of the size of the market
for U.S. corn during the 2000-01 marketing year. The early interest
in demand is stimulated by crop problems in China and speculation
about expansion of U.S. hog production.
U.S. corn is consumed in three primary
categories food, seed, and industrial (FSI); feed and residual;
and export. Food use includes high fructose corn syrup (HFCS);
glucose and dextrose; starch; cereal and other dry milled products;
and beverage alcohol. Industrial use is primarily for fuel alcohol.
Total FSI use of corn has increased steadily over the past 25
years. The only year-over-year decline in use during that period
was 1995-96 when corn supplies were limited and prices were very
high. The two growth markets have been HFCS and fuel alcohol (ethanol).
Use of corn for HFCS has grown from 45 million bushels in 1975-76
to 545 million projected for the current year. Use of corn for
ethanol has grown from 10 million bushels in 1979-80 to a projection
of 565 million bushels for the current year. These two products
account for about 58 percent of all food and industrial use.
For the year ahead, there is general
agreement that use of corn for ethanol will expand due to higher
petroleum prices. Last month, the USDA projected a 15 million
bushel increase. The market for HFCS is more difficult to assess,
partly because of the trade dispute with Mexico. The World Trade
Organization has ruled against anti-dumping duties imposed by
Mexico. The USDA has projected a 10 million bushel increase in
corn used for HFCS during the year ahead. That is a slower rate
of increase than experienced recently. The market may be a little
larger than projected. With trend increases in the other category
of use, the USDA has projected total FSI use at 1.96 billion bushels.
Some have suggested that the market could be as large as 2 billion
bushels if current low prices are maintained.
Domestic feed and residual use of
corn consumes the largest share of the U.S. crop. Use in that
category has expanded over time, growing from 4 to 4.5 billion
bushels annually in the early 1980s to the 5.2 to 5.5 billion
bushel level in the late 1990's. Use for the current year is projected
at a record 5.625 billion bushel. The USDA has projected a modest
increase of 25 million bushels for the 2000-01 marketing year.
With the continuation of low corn prices (in absolute terms and
in relation to soybean meal prices), expansion in broiler production,
and hints that the hog industry is in the early stages of a modest
expansion, feed and residual use might exceed the early projection.
The rate at which cattle feed lot inventories decline will be
an important factor in determining feed demand for corn. Generally
profitable livestock prices will likely encourage heavier slaughter
weights of both cattle and hogs. Optimistically, feed and residual
use of corn could approach 5.8 billion bushels during the year
Unlike domestic use of corn, which
has generally trended higher, annual exports of U.S. corn are
highly variable. In the last 10 years, shipments have been as
low as 1.328 billion bushels (1993-94) and as high as 2.367 billion
bushels (1989-90). Shipments exceeded 2.2 billion bushels in 1995-96,
but reached only 1.5 billion in 1997-98. U.S. corn exports are
influenced by the rate of world economic growth and the demand
for livestock products, the size of the feed grain crops in importing
and other exporting countries, exchange rates, trade policy, and
a number of other factors. Shipments during the 1999-00 marketing
year, which ends on August 31, are expected to total only 1.875
billion bushels, about 100 million less than shipped last year.
Part of the decline is associated with the large 1999 Chinese
corn crop and a sizeable increase (170 percent) in Chinese exports
during the current year. Those exports are projected at 354 million
bushels. World corn consumption is expected to increase during
the year ahead and consumption in the major importing countries
is expected to hold steady. Unfavorable weather has reduced the
likely size of the Chinese corn crop and the likely level of Chinese
exports. The USDA has projected a 118 million bushel reduction
in Chinese exports and a 175 million bushel increase in U.S. exports
during the 2000-01 marketing year. The swing could be larger,
depending on the actual size of the Chinese crop and the actual
size of old crop stocks in China. A rebound in U.S. exports to
the 2.2 billion bushel level is possible.
A market for 10 billion bushels
of U.S. corn is possible for the year ahead. However, use at that
level will require that prices remain at low levels. Year ending
stocks would obviously continue to grow if the crop is larger
than 10 billion bushels. The most important implication of record
consumption would be to minimize the level of stocks so that prices
would eventually respond to a shortfall in production.
Issued by Darrel
University of Illinois