Last week a Missouri ethanol refinery, operated by POET, announced it was suspending production because of the inability to find enough corn. Others may have taken the same action, but the reason may not have been as pronounced. There is no surprise about spot shortages of corn following the drought of 2012, and more will be identified as the marketing year progresses. In fact, the low yields of central Illinois prevented sufficient supplies to larger ethanol plants, which have purchased trainloads of corn from higher-yield areas in Minnesota and the Dakotas. In the southeastern U.S., livestock producers have found their shortage is better supplied by offshore sources, such as Brazil, than try to obtain odd lots where possible in the U.S. As a result of the trend, questions are raised about the stress on the corn user as a result of the tightening availability of corn.
USDA’s Jan. 11 report on the final production estimates for 2012, along with the Dec. 1 quarterly grain stocks, give an indication of the significance of the shortage. Ending stocks are at record lows, corn imports are projected and typical users are either going elsewhere for corn or seeking alternatives. That is the assessment of Bob Wisner, Iowa State University ag economist, who says despite the expectation for short supplies, prices have not begun to ration those short supplies yet. And he says that will have to happen between now and the end of August.
One of the largest users, the livestock industry, created some market confusion at the outset of the 2012 harvest when early-harvested corn was fed prior to the end of the 2011 marketing year. That caused estimates to be revised and questioned for the 2011 and 2012 crops. Some of that was offset by reductions in projected estimates of exports, says Wisner. USDA has projected a higher-than-average volume of corn being fed during the first quarter of the year due to increased livestock numbers, heavier market weights and substantial marketings.
But at the same time, feed alternatives are also in short supply, including corn from the 2012 second crop in Brazil and feed quality wheat from a variety of sources. Those may extend the ability of U.S. corn to meet export demand. But Wisner is not convinced of that. He says the main alternative to the short U.S. 2012 corn crop will be the 2013 second crop corn soon to be planted in Brazil. There is always the logistical challenge of getting it here, or anywhere for that matter.
With high use of domestic stocks in the first quarter of the year, there must be reduced feeding of stocks in subsequent quarters, but how much? Wisner says the 12% increase identified in the first quarter will have to be correlated with a feed reduction in the balance of the year. But he says that means there will have to be a larger reduction in livestock numbers than is now indicated. The only choice would be a reduction in cattle on feed (and USDA just indicated January cattle on feed was only 96% of that from 2012).