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Coronavirus cuts U.S. corn use
INDIANOLA, Iowa -- Corn produced by U.S. farmers is exported, fed to people and animals, and used to make ethanol as well as many other products.
Pete Meyer, Head of Grain and Oilseed Analytics for S&P Global Platts, says that the coronavirus has impacted both corn used for animal feed and ethanol.
"Both areas of demand will be watched closely, as they are intertwined. Prior to coronavirus outbreaks at packing plants, it was somewhat easy to add 200 to possibly 300 million bushels to U.S. feed demand, given the lack of dried distillers grain production. Now it’s a bit more difficult, but not a lost cause. We still see a 5.6 billion to 5.7 billion feed and residual number, lower than the May WASDE report. For the 2020 marketing year starting on September 1st, our forecast was as high as 5.8 billion bushels, before this unfortunate protein back up. But now, we need to reassess new crop corn supplies, as more data becomes available," Meyer says.
USDA's May estimates
In its May report, USDA/WASDE estimated total U.S. corn use in 2020/21 is forecast to rise relative to a year ago with increases for domestic use and exports. Food, seed, and industrial (FSI) use is projected to rise 245 million bushels to 6.6 billion.
Corn used for ethanol is projected to increase from the 2019/20 coronavirus reduced levels, based on expectations of a rebound in U.S. motor gasoline consumption, according to the USDA in May.
Corn feed and residual use is projected higher, mostly reflecting a larger crop and lower expected prices.
U.S. 2020/21 corn exports are forecast to rise 375 million bushels to 2,150 million, driven by growth in world corn trade. U.S. market share is expected to increase from the 2019/20 multi-year low, but remains below the average level seen during 2015/16 to 2019/20 with expected competition from Argentina, Brazil, and Ukraine.
With total U.S. corn supply rising more than use, 2020/21 U.S. ending stocks are up 1.2 billion bushels from last year and if realized would be the highest since 1987/88, according to the May USDA report.
Stocks relative to use at 22.4% would be the highest since 1992/93.
With larger stocks relative to use, the season- average farm price is projected at $3.20 per bushel, down 40¢ from 2019/20 and the lowest since 2006/07.
On the ethanol side, total corn use for the current marketing year is around 4.85 billion bushels, 200 million below the April WASDE, according to Meyer.
"2020-21 corn demand is forecast at 5.2 billion bushels, still below the “normal” 5.5ish billion in demand, as ethanol has more of an L-shaped recovery rather than a V or U. Together these are obviously negative as old crop carry out rises to 2.2-2.3 billion bushels from 1.9 billion just two months ago," Meyer says.
With the corn use for ethanol already taking a hit, corn used for livestock feed dropping too, could exports be next?
"Low prices solve low prices. So, while ethanol demand is lower, and possibly feed, we are hopefully looking for some increased exports, possibly 1.85 billion bushels against the current USDA estimate of 1.725 billion. Cautious optimism would be our opinion on exports for both the current marketing year and the next one," Meyer says.
While it might be too early to consider, many in the trade are asking if there will be a snapback in corn use from the coronavirus?
"It’s very difficult to see a major trend higher in demand, except possibly in exports which we believe could reach 2.3-2.4 billion bushels in the 2020/2021 marketing year. Buying habits in protein and driving habits have both changed as a result of the pandemic. We may see an initial snapback in demand, but that could be short-lived, as long term tendencies have been changed, in our opinion. Some have said that a lack of confidence in public transport will lead to more driving, which may be true, but we believe that work from home or flex days in the office will become the norm for roughly 40% of the work force that is at home now. A rebound in employment will also play a key role in both ethanol and protein demand. People have learned to live with less over the past two months and it will take some time to alter that behavior," Meyer says.
Coronavirus Impact On Livestock
Following the closing of two dozen meatpacking plants in April, due to employees contracting or dying from the coronavirus, President Donald Trump signed an executive order to ensure that meat production can continue during the COVID-19 crisis.
U.S. Meat Export Federation (USMEF) President and CEO Dan Halstrom says the late April order will help keep the U.S. exports competitive.
"The executive order will help ensure a steady, reliable supply of high-quality U.S. protein – not only for customers in the U.S., but across the globe," Halstrom stated on the USMEF website.
Through February, the U.S. pork and beef exports were on a record-high pace, with both recording the third highest monthly exports on record.
February pork exports reached 273,056 metric tons (mt), up 46% from a year ago, while beef exports jumped 18% from a year ago to 112,021 mt, according to USDA data.
As livestock production goes, so goes the use of U.S. corn supplies.
The National Corn Growers Association (NCGA) partnered with U.S. Meat Export Federation (USMEF) on the value of red meat exports study last year. The study showed that in 2018, red meat exports’ impact on corn price is $0.39 per bushel, based on the annual average price of $3.53 per bushel, according to a USMEF press release.
Dan Wesely, NCGA, says it is encouraging to see export demand for U.S. pork and beef continue to grow. “Animal agriculture is our number one customer, and with the uncertainty in the marketplace right now because of COVID-19, it is reassuring to know that exports in February were so strong. One in every four bushels of added feed demand for corn is directly tied to beef and pork exports.”
The study showed beef and pork exports used a combined total of 14.9 million tons of corn and DDGS, which equates to an additional 459.7 million bushels of corn produced.
Lasting Impacts of Coronavirus
According to a new report from CoBank’s Knowledge Exchange division, even if the reduction of processing capacity is temporary, it will likely have a lasting impact on meat processors, livestock producers, retail stores and consumers. Meat supplies for retail grocery stores could shrink nearly 30% by Memorial Day, leading to retail pork and beef price increases as high as 20% relative to prices last year.
“Margins for cattle and hog farmers have fallen to multi-year lows,” said Will Sawyer, lead animal protein economist with CoBank. “As meat plants have closed, farmers are left with few options for their livestock, requiring herds to be culled. Shrinkage in the U.S. livestock herd will likely make the food supply shortage more acute later in the year.”
Pork and beef production is down approximately 35% compared to this time last year, making retail shortages and price inflation nearly assured, Sawyer added.
While pork processing is expected to pick up in the coming weeks, hog producers may still be forced to euthanize as many as 7 million pigs in the second quarter alone, worth nearly $700 million at historical average prices. This would further diminish meat supplies this fall and add to the billions of dollars of losses from lower livestock prices, according to CoBank's press release.
Declining meat production in April will likely lead to reduced grocery store supplies in May and June. Grocery stores are likely already rationing their current meat supplies. The supply chain and inventory from the meat plant to local grocery store meat cases is less than a few weeks, according to CoBank's press release.
“Significant contractions in meat supplies have often led to substantial inflation of retail beef and pork prices,” Sawyer stated in a press release. “In the past 20 years, retail pork prices experienced inflation of more than 10% just twice. And neither of those times did we see inflation climb to 20%, which may be coming in the months ahead.”