Corn consumption: Who will blink?
The U.S. Department of Agriculture projects consumption of U.S. corn during the current marketing year to reach 11.890 billion bushels, 624 million above the record consumption of last year.
If the U.S. crop is significantly smaller than the current forecast of 10.905 billion bushels, however, consumption may have to be less than forecast.
It is rare that the U.S. crop is small enough that total supply (production plus carryover stocks) is small enough to require a reduction in consumption from the level of consumption during the previous year. That scenario unfolded only four times in the past 30 years: 1983-1984, 1993-1994, 1995-1996, and 2002-2003.
Consumption was lower than the previous year on five other occasions, but supplies were large enough in each of those years to accommodate an increase in consumption. For the current marketing year, supplies are not small enough to force a year-over-year reduction in consumption, but may be small enough that consumption will have to be less than currently projected.
The USDA will release a new forecast of the size of the crop on November 9 with the final production estimate to be released on January 12, 2007. Expectations are that the November U.S. average yield forecast will be 1.5 to 2.5 bushels below the October forecast of 153.5 bushes per acre, resulting in a production forecast of 10.73 to 10.8 billion bushels.
With 45% of the crop rated in good condition and 18% rated in excellent condition at the end of the season, a yield near 152 bushels would be expected. With September 1, 2006 stocks of 1.971 billion bushels, a crop of 10.765 billion bushels, imports of 10 million bushels and consumption of 11.89 billion, stocks at the end of the current marketing year would be reduced to 856 million bushels, or 7.2% of projected use.
The experience of 1995-1996 suggests that a minimum pipeline supply at the end of the year is about five percent of consumption, equivalent to about 600 million bushels this year. At this juncture, potential supplies appear adequate to allow consumption at the projected level, but concerns about the 2007-2008 marketing year will persist.
Historically, the adjustment to shortfalls in U.S. corn production were primarily in the domestic feed and residual category of use. In the four years in the past 30 years that supplies were small enough to force a year-over-year reduction in use, feed and residual use declined by an average of 11.3%, in a range of 5.1% to 15.2%. The largest year-over-year decline in feed and residual use in recent history was 17.9% in 1988-1989.
Ironically, corn supplies were large enough that year that a reduction was not required. Prices over-reacted to the extremely small crop, forcing a larger than required reduction in use. The quarterly pattern of decline in feed and residual use was not consistent over the five years mentioned here, occurring early in 2003-2003, late in 1983-1984, and more uniformly in the other three years.