Educational Materials & Marketing Services Extension 4-H Youth Bldg. Ames, Iowa 50011-3630 (515) 294-9915

1/23/04

Contacts:
Robert Wisner, Ag Economics, (515) 294-6310, wisner@iastate.edu
Jean McGuire, Continuing Education and Communication Services, (515) 294-7033, jmcguire@iastate.edu

World Feed Grain Stocks Approaching 1995-96 Levels

In the last two years, four out of seven major world grain producing regions have experienced adverse weather and sharply reduced grain production, according to Robert Wisner, Iowa State University Extension economist. Wisner said USDA's Jan. 12, semi-final crop estimates provide an updated look at the impact of adverse weather on the world grain sector.

With the new estimates, world feed grain supplies now look almost as tight as traders believed them to be in 1995-96, and are expected to pull Aug. 31, 2004, U.S. corn carryover stocks slightly below a year earlier. Wisner added that anticipated U.S. corn carryover stocks are much more adequate than in 1995-96.

" In contrast, U.S. soybean stocks as a percent of annual use almost certainly will be at or near record lows, and both domestic use and exports will have to be cut sharply in the next eight months," Wisner said.

The year 1995-96 recorded the tightest world feed grain supplies ever. Corn futures prices that year reached a record $5 per bushel and north central Iowa cash prices were in a $4.50 to $4.80 range for a little over four months during the spring and summer, with a brief move up to $5. Wheat futures that year reached a record $7 per bushel.

" Tight supplies appear likely to push prices for both corn and soybeans irregularly higher into the planting season and will make summer prices extremely sensitive to Corn Belt weather," Wisner said. "Old-crop soybean futures prices may move into the upper $8 range or higher at times. New-crop soybean futures will likely remain strong and may increase into the planting season as the market attempts to head off a decline in soybean plantings. That prospect and strong demand for the 2003 corn crop probably will support December corn futures into spring and at times may push prices at least modestly above mid-January levels."
Wisner said that because of widespread weather problems, foreign corn exports are projected to be down 31 percent from 2002-03. Total foreign feed grain exports are expected to be 26 percent below last season, along with a 15 percent decline in foreign wheat exports. Reduced foreign competition is causing sharply increased U.S. corn and wheat exports.

U.S. Share of World Feed Grain Markets
The U.S. normally produces 40 to 42 percent of the world's feed grain crop. Its share of global exports tends to fluctuate from 50 to 66 percent, depending on the size of foreign crops. This season, it is projected to provide 66 percent of world exports, up from 52 percent last year.

" For the 2004-05 marketing year, history suggests farmers should expect better foreign crops and a smaller U.S. share of world exports," Wisner said. "But if foreign crops improve in 2004, part of the extra production will be used to increase carryover stocks to a more comfortable level rather than exporting all of the increase."

U.S. Soybean Use to Drop Sharply
Domestic soybean crushings from September through November matched the year earlier level but will need to drop about 13 percent the rest of the season because of limited supplies. From mid-January through August, weekly average U.S. soybean export sales will need to be about 70 percent below a year earlier. Higher prices probably will be needed to cause these reductions in use. Wisner added that world soybean supplies look adequate to meet this season's demand and still leave large global stocks, provided South American yields are near normal.

China and the grain markets
In the last five years, China has become the largest export market for U.S. soybeans. Its purchases of U.S. soybeans through early January were up 65 percent from a year earlier and were nearly three times as large as U.S. export sales to the EU. Wisner said that for decades, the EU was the largest export market for U.S. soybeans, but its purchases of U.S. beans have declined with its concerns about GMO foods. Large Chinese purchases of U.S. soybeans reflect problems with its oilseed crops and a strong upward trend in demand for soybean products as consumer incomes increase. China's protein meal consumption has increased by about 11 percent annually in recent years, along with a 13 percent growth rate in vegetable oil consumption. Wisner said China's sharp increase in purchases of U.S. soybeans this year suggests the Chinese are uncertain of Brazil's ability to ship out the quantities it needs in a timely manner. He added that China also may be wary of importing Asian rust with Brazilian beans.

Wisner said China also is one of our largest competitors in the feed grain market. It has been a net exporter of corn since the early 1980s--except for two years in the mid-1990s, when weather problems there and in the U.S. helped propel corn prices to $5 per bushel. For the last three years, China's corn yields have been sharply below the long-term upward trend. USDA currently projects China's corn exports this marketing year to be down 52 percent from last season. He added that China was a substantial exporter of corn through December, but trade sources indicate its exports are being halted in January and February for logistical reasons. There is much uncertainty about the exact size of Chinese corn exports from March through September, but they are projected to be well below last year. Wisner said that prospect, combined with sharply lower exports from the EU, Eastern Europe, Former Soviet republics and Argentina, should keep U.S. corn exports strong through early fall.

Wisner said U.S. corn sales to Korea, Malaysia, and Taiwan will be important indicators of how aggressive China is in corn export markets. All are markets for Chinese corn. Through mid-January, U.S. sales to these countries were increasing but had not been large enough to confirm that China would be out of the corn market the rest of the season, as many trade analysts speculate.

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