Thursday, September 15, 2011

Is Corn Rationing on the Horizon?

In the news as of late is speculation that the American corn supply may have finally maxed out, especially in a year that is expected to produce a smaller crop than in recent years.  

The much anticipated September USDA crop report is now behind us, and the supply-side estimates showed mixed results. The USDA slashed the yield estimate from the August estimate by a staggering 4.7 bushels per acre (bpa), to 148.1 2 bpa. A downward revision was in the market, but the estimate was below the average analysts’ guesstimate of 149.086 bpa. The crop estimate fell to 12.497 billion bushels, a scant 50 million bushels larger than the 2010-11 crop, which was planted on much smaller acreage.

On the other hand, the USDA maintained the August estimate for the harvested-to-planted ratio at 91.4%. Analysts were expecting to see the ratio lowered as well and were surprised that it was not. There is talk that once all the data are in, it will be reflected in the October estimate and that the cut could be as large as one million acres. That would bring the ratio down to 90.4%. Aside from the two disastrous crops in 2002-03 and 1993-94, that would be near the low end of the range of the past 20 years. Were that to happen, the crop would be 12.351 billion bushels – actually smaller than last year’s crop!
Many are blaming ethanol as the new game changer in the market place as the congressional RFS has been fully realized in the last few years.  This doesn't make the livestock industry happy at all:

Representatives from the livestock, dairy and poultry industries testified Sept. 14 about feed availability—or as one witness said, feed unavailability—in front of a subcommittee of the U.S. House Committee on Agriculture. Although comments varied, the majority pointed to the ethanol industry as a main factor in rising feed prices and called on Congress to end government subsidies, particularly for corn ethanol, while also providing a mechanism for a renewable fuel standard (RFS) waiver and altering Conservation Reserve Program policies to open up more cropland for planting.

So where does this leave American agriculture, once a unified industry?  Just as the 2012 farm bill is getting ready to be written, the  lack of unity will likely affect the outcome.  Couple this with the pending changes that are set to slash up to $1.6 trillion in federal spending, things aren't looking good for agriculture.

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