Economist Forecasts Slightly
Higher Corn And Grain Prices

AMARILLO — Dr. Mark Waller, a professor at Texas A&M University and an Extension grain marketing economist, expects to see slightly higher prices for corn and feed grain through 2002 and into 2003.

He places corn prices at $2 per bushel for 2001/2002 and thinks they will range from $1.90 to $2.15 in 2002/2003. He expects grain sorghum to be a nickel behind corn.

Speaking to grain farmers here last month at an Extension Service Master Marketer program, Waller says weather conditions, however, could change the projections drastically.

Corn accounts for about 90 percent of the feedgrain market in the U.S.

Corn figures are down as a percent of carryover-to-use.

"We've got a little better carryover situation there," Waller says, compared to wheat.

Soybeans, which compete with feedgrains for a lot of acreage, are up as a percentage of carryover-to-use.

"As we've seen things shift with the 1996 farm bill," Waller says, "we've seen more acreage in soybeans. It's had an impact on what's happening to feedgrains."

The same things that are impacting the U.S. market are impacting markets in the southern hemisphere.

"We've got production below consumption," Waller says of corn. "It hasn't helped prices as much as we might anticipate."

He says the reason is that there is not as much growth in cattle numbers as had been expected.

"I think this has to do with the world economy," Waller says. "We need for things to pick up. World exports have been fairly sluggish."

World ending stocks of corn, however, have been declining.

"If world ending stocks are declining, at some point prices are going to get more sensitive," Waller says.

A lot of the price mechanism now is locked into weather.

"I hate to say that we're depending on Mother Nature," Waller says, "but that's the farm policy we've got. We've all said we don't want any supply control anymore. We're going to let the market take care of it."

The only way to reduce supply in that kind of situation, he says, is with weather.

"The only way you're going to see big price shocks," he says, "is with big weather disruptions that cause big drops in production."

Growth in demand doesn't happen quickly.

"Corn isn't quite as positive looking as coarse grains as a whole," Waller says. "If we look at corn, production has dropped a little bit below consumption."

Corn exports for the last few years have been stable, neither increasing nor decreasing.

"For the last several years, world exports have been pretty doggone flat," Waller says. "Part of our competition there has been China. They've tried to move some of their grain ahead of time to get into WTO (the World Trade Organization). They had a lot of extra supply, and before they became a WTO member, they were wanting to move some of that grain and get it out of storage because they can't subsidize it as easily later on."

Consequently, China has been a stiffer competitor in the export market than they will be in the future, he says, especially in corn and feedgrains.

Last year, Waller says, there was a decline in acreage at the domestic level.

"We had some decline because of poor planting conditions in Central Texas," Waller says. "Up in this part of Texas and up in the Plains, there were some declines because of high energy prices in the irrigated crop."

The Midwest declined somewhat because of late planting.

"They shifted some stuff to other crops and didn't get some acreage planted," Waller continues. "I think some of that will come back as we come into the next year. That's why I think as we move out we'll see a little more production when we come out into the next year."

On the demand side, domestic use for corn was up a little bit this year, Waller says. He attributes this to an increase in ethanol production and use.

"That has its good and bad side," Waller explains. "The good side is we're using some corn for ethanol, but one of the things that we've got to keep in mind is when we make ethanol, we don't get rid of the corn."

There's a product that still has to be sold.

"As we move out into the future and increase ethanol production even more, while that tends to be higher protein, competes with meal, it also competes with feed grains because at some point it gets cheap enough to become energy as well," Waller says. "While we use part of that to produce ethanol, it doesn't all go away. There's still a byproduct that's got to be fed."

Exports, he predicts, should hold steady through the next crop year and should be above ending stocks.

"We've got more exports dialed in," Waller says, "but we've consistently been running behind in our shipments and sales this year. We haven't been exporting stuff as quickly as we'd anticipated. Part of that is, again, that China's been trying to move grain ahead of getting into the WTO at the beginning of the year."

He says that will slow down a little.

"We may see our exports pick up as we get to the back end of the marketing year," Waller says. "Next year, it will be difficult to get too far ahead of that, I think."

Still, he is optimistic about corn usage next year.

"Our total use, I think, will increase a little bit as we go into the next year. Ending stocks, we'll have to kind of look at it and anticipate we won't see a whole lot of change."

Corn yields may be down this next crop year, but acreage will be up after a drop this past year.

"I think we're going to bounce back a little bit this year, and come back in line with more of what we've seen over the last several years and jump back up to more like 72 to 73 million acres, which would put us somewhere in the three to four million acre increase," Waller says. "Yields may be down a little bit from last year, but I think if we look at the trend you could put anything from 138 to 140 bushels and probably be in the ballpark.

Export markets are dominated by the U.S., but there is competition.

"We're the major player," Waller notes. "We're going to continue to be the major player on corn. We are the major producer. One of our biggest competitors has been China. China's going to slow down and that's going to help us a little bit."

There is also some competition from the southern hemisphere.

"We're going to continue to see some pretty serious competition," Waller says. "If Argentina can get their economic situation together, they're going to continue to provide competition."

The Brazilians are going to be a bigger competitor in corn in the future, he believes.

"They're expanding soybean acreage," Waller explains. "They're expanding corn acreage."

They may also expand cotton acreage.

"The just seem to want to expand acreage," Waller says, "and they have ways to get stuff to port cheaper. That's been a big hangup for them in the past. They've got cheap land. They've got cheap labor. They're going to be a significant competitor of ours and squeeze us pretty hard in the future."

USDA projects about 1.9 million bushels of carryover this year. Waller sees that dropping to about 1.5 million going into 2003.

"If we go back to harvested acres of about two years ago, about 72.4 million acres, it'd be about a 3.8 million increase," he says.

Using 139-bushel yields, production should be a little more than 10 billion bushels.

"We've been running about 10 million on imports," Waller says. "If you dial all that in, it gives you about an 11.62-billion supply.

If there were a little increase in feed use and a little increase in domestic use this year, Waller thinks domestic use could be pushed up a little over eight billion bushels.

"If we can keep exports about where we've got them this year," Waller says, "then that should give us a use figure of just at 10 billion bushels."

That suggests a slight carryover, he says.

"Not a big one," Waller notes. "It would be about 1.6 billion bushels."

Several factors, however, could change.

"Given the way some things could go and if the economy could turn around a little bit, given China's situation, it may not be as much of an export competitor, even with a slight increase in carryover, I think we can probably look at a little bit higher price, not a lot higher price, but a little higher price even with a slightly higher carryover."

He puts corn prices in the $1.90 to $2.15 range.

"I think the world economy will be able support a little bit better price," Waller says.

He expects ethanol use to go up.

"We're going to have a bunch of plants that are going to come on line," Waller says. "It's continuing to grow, and it's going to continue to grow."

There is some legislative support for it.

"The administration seems to be in support of it." Waller says. "If California could get their act together, they could become a good market."

Part of the issue is going to be what to do with the distillers’ grain.

"The feedlot industry might enjoy the way that works out," Waller suggests.

That could give them some additional feeding stuff.

"The problem is, that stuff's heavy," Waller adds. "You either have to dry it back down and move it somewhere to use it, or you've got to have those feedlots fairly close. If you try to transport it wet, it's going to cost a lot to move it very far."

With regard to grain sorghum, Waller says production and consumption have gotten closer over the last several years. Grain sorghum prices have come closer to corn.

"The Mexican market has helped us along," he says. "It will continue to move stuff. We've got some dairy folks who are also using more grain sorghum."

That combination of factors has tightened the grain sorghum market the last several years.

"I think it will continue to do so," Waller predicts.

Acreage, however, is probably still going to decline for grain sorghum the next year, he says.

"We saw it bump up a little bit last year," Waller says. "I would expect it to drop off a little bit this year. It's hard for grain sorghum. People who've got water will try to produce corn if they can. They can get more income off of it. If they don't have access to the water, they're going to look at grain sorghum, but grain sorghum continues to struggle with acreage because of competing crops that can generate higher revenue.

"As we look at yields and acreage, I think harvested acres are going to come back down a little bit this year, but they won't go back down as low as they were two years ago or four years ago."

Yields have come back up a little, he says.

"They've been down somewhat the last couple of years as we've struggled with weather," Waller says. "Dryland grain sorghum is one of those crops that has been hit pretty hard by that weather."

He expects yields to come back this coming year.