The condition of the corn and soybean crops continued to deteriorate through the week ending Sunday, with the percentage of the U.S. corn crop rated good to excellent by the U.S. Department of Agriculture dropping from 60 percent last week to 57 percent this week. A year ago 70 percent of the U.S. corn crop was rated good to excellent.The headline at Reuters Africa:
Dryness continues to be a problem over most of Iowa. State Climatologist Harry Hillaker said statewide average precipitation was 0.68 inch while normal for the week is 0.95 inch....MORE
The University of Illinois' farmdocDaily talks about a subject I mentioned in August 12ths "Lend Me Your Ears: If Corn Futures Are Headed to Record Highs, End Users Will Have to Ration Use (CORN)":
Following up on yesterday's "USDA lowers corn yield estimates"From farmdoc:
Actually it's more triage than rationing but in the trade the mental model is that price rations who can afford the feedstock.
Hog and cattle farmers tend to stop bidding first, sending herds to slaughter rather than continuing to feed and potentially locking in losses.
Then food producers stop bidding as the end user consumer balks at paying more for their high-fructose-corn-syrup enhanced packaged food.
Lastly the ethanol producers who, thanks to the mandated use of the product, tariffs on imports and the tax credit have the money to bid.
That's the food chain, in "Brainpower Nation" we burn our food to appease Al Gore and the Gods of Iowa.
(that heretic has recanted but he waited until the industry was entrenched)
Pork Producers Ability to Pay for Corn
This year’s corn crop is not big enough to meet the entire consumption base that has been built. Prices will have to be high enough to convince some end users to reduce consumption from current levels. Can the pork industry compete with other end users?And that, boys and girls, is why your bacon costs more than a year ago and will be higher yet next year, after the hog farmers give up.
The answer is complex and will depend on many factors including how small the U.S. corn crop is and production in the southern hemisphere this winter. Ultimately the question is how high corn prices have to be to get a sufficient number of end users to reduce consumption.
The largest competitor for corn in the coming year will be the ethanol industry where USDA analysts currently estimate 5.1 billion bushels of corn use. To meet the mandated domestic Renewable Fuels Standard (RFS) will require about 4.7 billion bushels with nearly 400 million additional bushels used to make ethanol that will be exported. The 5.1 billion bushels of mostly mandated usage is 39 percent of the 2011 crop.
Mandated corn use was troublesome to the animal industries when corn was abundant. Now with short corn supplies, the concerns are even greater. Clearly use of 400 million bushels of a limited corn supply to produce ethanol to be exported to countries like Brazil is far beyond the intent of Congress in the 2007 energy legislation that established the current RFS. The short corn supply increases the odds that some end users, including the animal industries, will appeal to the EPA to consider exercising the emergency clause to reduce ethanol mandates for 2012.
Without a reduction in mandates, the cut-back in corn usage will primarily be thrust upon the non-fuel sectors represented primarily by the domestic animal sector and corn exports. There has been a general assumption that foreign customers would reduce consumption as prices rise, however in 2007/08 foreign customers increased purchases. Given the low value of the dollar and strong desire of many foreign governments to do what they can to moderate food inflation, the question remains whether the foreign sector will cut U.S. corn imports this year.
In 2007/08 the domestic livestock industry could not pay more than $6 per bushel for corn. That is no longer true as reduced per capita production over the past four years has increased farm level prices for animal products. Corn prices will have to move to new record highs on a marketing year basis to get animal industries to reduce corn use....MORE
There will be some bargains in-between as the herd gets slaughtered causing prices to dip.
I may be in the market for some cold storage property.
