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USDA reports have whipsawed grain markets this summer and fall, as record-hot weather in the Corn Belt kept analysts guessing about yields and changes in demand for animal feed grains upset long-established patterns. This and more has complicated the economic outlook for poultry companies and added uncertainty to the job of planning for 2012.
The immediate economic certainty for poultry companies is that corn supplies remain tight, even with larger than expected beginning stocks for the 2011/12 crop year. The October 12 World Agricultural Supply and Demand Estimates raised beginning corn stocks by 208 million bushels to 1.128 billion bushels. And while the WASDE forecast for ending stocks was raised by 194 million bushels to 866 million with reduced exports, that level of ending stocks is equivalent to only 25 days of use – below the 30 days considered by analysts to be a safe level.
Corn price forecast for 2011/12 crop year
Tight supplies mean continued high prices. In the October 12 report, USDA forecast corn prices in Chicago at $7.10 a bushel on average for the 2011/12 crop year. Compare that to the 2010/11 average corn price of $5.75 a bushel. From $5.75 to $7.10 is a big jump. Is the USDA forecast too high?
Poultry industry consultant Paul Aho forecasts Chicago corn prices to average $6 a bushel in the 2011/12 crop year. “The prediction of a $7.10 Chicago average price by the USDA is too high in my opinion,” Dr. Aho told WATT PoultryUSA. “USDA is predicting a drop of only 100 million bushels of corn consumption for feed for the crop year. That’s a very modest drop in feed consumption.” He expects the level of feed consumption to drop more than the USDA forecast in its October 12 report because of fewer chickens and cows consuming feed in 2012.
“The average corn price for the 2010/11 crop year of $5.75 was a record high. It would be amazing to have record high corn prices for two years in a row. High corn prices are going to bring out corn production everywhere around the world, which is another reason record high corn prices can’t last,” he said.
Aho forecasts corn prices will come down to an average $5 a bushel in the 2012/13 crop year.
Demand picture is muddled
While a sluggish economy is causing U.S. poultry and meat producers to reduce production, other demand factors may work to keep corn prices high. After the October 12 WASDE report, China purchased 900,000 metric tons of U.S. corn – one of its largest purchases ever. That purchase and others could cause USDA to raise its forecast for exports. USDA forecast only 1.6 billion bushels of U.S. corn exports for 2011/12, which was a drop of 50 million bushels from the September report and 235 million from the previous crop year. Meantime, Mexico recently purchased 261,200 metric tons of U.S. corn, and Russia announced plans to limit its exports of grains.
Aho, however, focused more on U.S. consumer demand for poultry and meats in his outlook. “The thing that I would caution people about is that the question has not been settled as to whether or not there will be a double-dip recession. I would predict that there will be no recession, but anemic growth,” he said.
He pointed to data on continued weakness in U.S. median income. “U.S. median income, adjusted for inflation, went down during the recession and is continuing down. That hits chicken consumption and seems to explain weakness in consumer demand for poultry better than GDP.
“If U.S. median income continues down in 2012,” he said, “the poultry industry will need to cut chicken production further.”