Livestock Inventories Will Impact Corn Demand

Click here for photo of Billy Schmitz.

Click here for graphic of “Stocks to Use for U.S. Corn.”

By Billy Schmitz, Cattle-Fax

According to the November USDA supply and demand estimates, feed and residual usage at 5.875 billion bushels is projected to be down 289 million bushels compared to last year. This number could be revised up if livestock inventories are higher in 2006.

Cattle on feed numbers have been higher this fall and a larger calf crop could place more cattle into feedyards this year. Total hog inventories were up in the latest quarterly hogs and pigs report and the projected number of sows farrowing in the December to February time frame could be 1 percent larger than last year. The November chicken and eggs report indicated that broiler and egg type chicks hatched were up 1 percent and 3 percent, respectively, compared to October of 2004.

Food, seed, and industrial usage is anticipated to be 2.96 billion bushels in 2005- 2006, 274 million bushels larger than last year. The bulk of the increase is corn used in ethanol and is expected to be 1.757 billion bushels in 2005/06. Based on Cattle-Fax analysis, ethanol expansion this year could add an additional 150 million bushels to the current USDA projection.

USDA corn export projections of 2 billion bushels are 171 million bushels larger than last year. With global supplies anticipated to be down this year, the U.S. could export more corn, but year-to-date exports were down nearly 1.5 percent as of Nov. 24.

Futures prices likely will have a difficult time sustaining rallies in March and April given the abundant supply of corn. Board prices could firm up once we are through harvest lows, but there has been a significant amount of corn put into storage that should keep prices in check next spring. Cattle feeders are encouraged to lock in a portion of their spring basis if it is offered at least 12-15 percent lower than current levels. Higher transportation costs and the need for corn in ethanol production in the Midwest could result in stronger than normal basis levels for producers in the Southern Plains.