The most dramatic feature of the 2014 world feed grain crop was the record corn yield in the United States—173.4 bushels per acre—smashing the old record of 164.7 bushels per acre set in 2009 (see Figure 1). Both the U.S. and world corn crops were the largest in history. With that level of productivity, U.S. corn carryover stocks at the end of the 2014/2015 marketing year are forecast to be 2.008 billion bushels, the largest ending stocks since 2004/2005; world corn ending stocks the largest since 1999/2000.
On the consumption side of the supply and demand balance sheet, corn use set all-time highs, both in the U.S. and world markets. World per capita corn consumption is now 134 kg (295 pounds) per person per year, up from 100 kg (220 pounds) in the early 2000s and about 73 kg (160 pounds) per person in the early 1970s. Since 2003, corn consumption has increased 3 percent per person per year in addition to the 1.1 percent annual world population growth rate.
The 2014 corn crop followed record levels of production in the U.S. and worldwide in 2013. Back-to-back favorable years of corn production have resulted in a dramatic drop in prices. The national season average price of corn paid to the farmer has been cut in half in two seasons, dropping from $6.89 per bushel in the Corn Belt drought year of 2012/2013 to an estimated $3.40 per bushel in 2014/2015.
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Of the fundamental factors that will shape feed grain prices in 2015, the first is the impact of current prices on the acreage decision. Lower grain prices offer fewer incentives for farmers to increase acres or increase inputs to push production to higher levels. U.S. farmers have decreased corn acres the last two years, and corn prices relative to other crops offer little incentive to increase acres in 2015.
With little if any expansion of planted area, production increases hinge on yield. If the U.S. corn yield in 2014 had been anything below 172.8 bushels per acre, world corn production would have gone down not up. With normal growing conditions, a trend line yield estimate for 2015 would be in the low 160s.
Demand looks to remain strong. Low corn prices are boosting profits for the animal feeding and ethanol industries and export demand, especially for grain sorghum, is above levels needed to reach marketing year projections.
With planted acres steady, normal yields, and robust demand, U.S. and world ending stocks of corn should be lower in the new crop year relative to 2014, a move that is positive for feed grain prices. The October average closing price of the December corn contract in 2014 was $3.49 per bushel. Current fundamental factors indicate that price in 2015 to be between $4.00 and $4.40 per bushel. Overall, strong demand creates an environment for grain prices to be volatile relative to supply changes: swinging lower if production prospects are better than normal or higher with a threat of a supply disruption by a major producer anywhere in the world.
Figure 1. U.S. Corn yield