Big increase in US corn production forecast

The results of the Prospective Plantings survey released by the US Department of Agriculture at the end of March suggest a large increase in the area to be planted to corn in 2016. At 93.6 million acres, it represents a 5.6% increase on last year, where expectations were for an increase to 90.0 million acres.  The largest pre-report estimate compiled in a Reuters survey was for 91.0 million acres (reported in the Daily Livestock Report). It should be noted, however, that these are prospective plantings – the seeds are not yet in the ground and could be switched to a different crop, such as soybeans or wheat.

One of the forecasters in this sector is the Livestock Marketing Information Centre.  They are currently assuming a 2% fall in the corn yield in 2016, with total production for the coming season of 14.1 billion bushels – just below the 2014 record of 14.2 billion bushels.  Some of the additional supply will be absorbed by the livestock and poultry sector but overall demand is expected to lag supply growth.  A crop this large would increase the stocks available at the end of the 2016/17 season, where they are already high at present.  Assuming no major disruptions in the growing and harvesting periods, corn prices in 2016/17 are expected to decline further.

Lower grain prices are positive for the US livestock industry and generally bolster margins for livestock and poultry producers.  The two highest costs of production are the animals themselves; and the grain to feed them. The impact on the end products – beef, pork and chicken – is not so clear, but the cheaper feed could continue to encourage feeders to finish their animals to heavier weights, bolstering overall supplies and pushing prices lower.  US producers often say that ‘cheap feed eventually becomes cheap meat.’  Based on the latest farmer survey, feed supplies are poised to get cheaper in the next 12 months.

With contributions from the Steiner Consulting Group (http://steinerconsulting.com/).