Demand to Set Another Record

SEPTEMBER 2, 2010

By: Linda H. Smith, Top Producer Business and Marketing Editor

In less than two months, as Russia burned literally and figuratively in its worst drought in history, we transitioned from an ample world supply situation to one in which supply and demand are much more in balance. "The U.S. is an island of supply in a world that needs supplies," says Dan Basse of AgResource. "With crops being trimmed worldwide, we will be the reliable supplier."

Domestic demand for corn promises to be firm, pegged at 50 million bushels above this past year and carryover equaling less than 10% of use. The soybean outlook isn’t quite as rosy, with ending stocks climbing from this past year and equal to 11% of demand. However, "soybeans and meal could be the bigger story in the long term," says Jerry Gulke of the Gulke Group. "USDA has China’s bean imports at 49.5 million metric tons [mmt]. Some say the total could be as much as 58 to 60 mmt. They’d have to import roughly a million tons a week."

Corn ethanol use, pegged at 4.7 billion bushels, is up 200 million bushels, just about offsetting feed use, which fell 175 million bushels. Total grain-consuming animal units are up a touch from 2009. Both dairy and beef cattle are down for the third year in a row, squeezed by red ink. Hogs, on the other hand, are up, and poultry is up modestly.

The July 1 cattle and calves inventory fell 1% from this past year. With the smallest calf crop in 50 years, the question is, "When will herd rebuilding start?" Traditionally, the cycle includes six to eight years of increasing numbers followed by three or four years of liquidation.