USDA Feed Grains Baseline, 2005-14
The gross domestic product is expected
to grow in the United States and around the world, raising
incomes and boosting demand for meat. A growing livestock
industry will need increasing supplies of feed grains.
A ban on methyl tertiary butyl ether (MTBE) in some
States is boosting the use of ethanol in gasoline to
comply with the Clean Air Act's requirement for oxygenates
in the fuel. The majority of ethanol is made from grains,
creating an increasing use for feed grains. Estimated
net returns per acre are expected to be more favorable
for corn than for other feed grains. As a result, acres
planted to corn, the primary feed grain in the United
States, are forecast to increase slightly. In contrast,
plantings of oats may remain unchanged, but sorghum
and barley acres may decline. The effect of these changes,
as well as other factors, on the U.S. feed grains sector
are evaluated in preparation of the Department's 10-year
baseline projection.
Each
year, USDA updates its 10-year projection of supply and utilization of major field
crops grown in the United States, including feed grains (see
Overview of the USDA Baseline Process). The commodity projections are used
to forecast farm program costs and to prepare the President's budget. One key
use of the projections is as a "baseline" from which to analyze the
impacts of potential policy changes affecting U.S. agriculture. This discussion
briefly summarizes the analysis underlying the feed grain projections for 2005-14.
Details about the baseline projections for the U.S. macroeconomy, other U.S. crops,
U.S. livestock, the U.S. agricultural sector, and global agricultural trade can
be found in the Agricultural Baseline Projections
briefing room. The U.S. feed grain sector is expected to face
a period of firm growth during the entire baseline period as growing economies
throughout the world encourage consumption of livestock products. Ethanol for
fuel will also boost corn use and, to some extent, sorghum use. Corn will continue
as the feed grain of choice, because of rising yields, especially in the United
States. Sorghum, barley, and oats will continue as specialty crops. Increased
global demand for meat is expected to boost world consumption of feed grains.
However, production constraints, especially limited area, will keep many traditional
grain-importing countries from expanding production as rapidly as use, boosting
global coarse grain trade. Most of the growth is in corn trade, and the U.S. share
of corn trade is expected to increase. Global barley trade is also expected to
expand, but remain small. Sorghum trade is expected to decline due to reduced
imports by Mexico, but later regain initial trade levels.
Supply
Supply reflects changes in land used for planting
and gains in yields of the crops.
Corn Acres to Increase. The number
of acres planted to corn is expected to total 81 million
in 2005 and increase to 84 million by the end of the
baseline. Corn plantings are influenced by expected
net returns for corn relative to competing crops. Net
returns are determined by yields, production costs,
and prices. However, the number of acres available for
crop plantings is limited. If more water were available
for irrigation, additional land could be brought into
production but that is not foreseen. As a result, feed
grains compete for acres with other crops.
Among
the feed grains, corn has the highest return above variable costs. Soybeans are
the major competitor with corn and had returns above corn from 1996/97 through
2001/02. Net returns for soybeans are expected to be below net returns for corn
throughout the baseline period, due to lower relative prices caused by increased
South American production.
There
are benefits to growing crops that may not be reflected in a single year's cost
and returns analysis and; thus, expected net returns do not explain all planting
decisions. Maintaining rotations is an important objective for most farmers. This
provides numerous agronomic benefits and may outweigh decisions based only on
price signals. Soybeans and corn work well in rotation because many of the insects
that attack one crop do not bother the other crop. Many corn farmers alternate
annually between corn and soybeans. Corn is heavily fertilized for large yields
and carryover fertilizer benefits soybeans in the following year. Likewise, soybeans
roots can host bacteria that convert nitrogen from the air into a form usable
by plants if the seed is inoculated prior to planting (a dust containing the nitrogen-fixing
bacteria is added to the seed after cleaning). Carryover nitrogen from this process
benefits the following corn crop. Before genetically modified, herbicide-tolerant
soybeans became available, corn in the rotation was preferable for greater weed
control. Now that soybeans can be sprayed to control the weed foxtail, corn may
also benefit.
Corn Yields Continue to Rise. For
the baseline analysis, yields for corn were determined
by calculating the trend growth in yields since 1960
(1988 drought year was omitted). As a result of these
calculations, corn yields are projected up 1.8 bushels
per year over the baseline period. Increases in corn
yields have been driven by continued improvements in
plant genetics and equipment allowing faster earlier
planting and harvesting, along with other advances such
as better targeting of fertilizer needs.
A
similar analysis with 1988 included was performed for barley and oats, but their
growth is considerably slower than corn. Barley yields are projected up by 0.6
bushels per year, while oats yields are up 0.4 bushels per year. Sorghum yields,
based on a 10-year average, are expected to increase by 0.4 or 0.5 bushels per
year. Demand
Demand for feed grains is derived from
the demand for livestock feed, which is derived from the demand for meat, milk,
and eggs.
Macroeconomic Growth Indirectly Affects
Feed Grain Use. The baseline assumes that growth
in U.S. gross domestic product (GDP) moderates in the
near term from the rapid growth in 2004 as the economy
moves toward a longrun annual growth rate near 3 percent.
Ongoing U.S. technological advances associated with
computing and telecommunications will provide support
for worldwide economic growth throughout the projection
period.
World
economic growth is projected to strengthen from the slow growth of 2001-03, averaging
over 3 percent through 2014. Most countries of the world move close to longrun
sustainable economic growth rates. Relatively high oil prices in 2004 and beyond
will constrain Asia and its manufacturing sector, which is far more dependent
on energy for GDP growth than more developed economies. Definition
of country groups As economies expand, consumers shift
to more meat in their diets and this requires more feed grains for meat production.
Diets in the United States already have adequate quantities of meat, but an expanding
economy will keep meat consumption brisk. Internationally, expanding economies
are likely to change diets, especially in developing economies. As a result, the
baseline analysis expands world trade in feed grains and increases exports from
the United States.
Livestock Products to Increase, Boosting
Feed Grain Use. Production of U.S. livestock products
is expected to increase during the baseline period.
U.S. beef production was down in 2004 because of reduced
cattle numbers in prior years and small calf crops.
In addition, with normal weather, heifers are likely
to be held back to rebuild the herds. The combination
of a small calf crop and larger numbers of replacement
heifers will slow beef production increases in 2006.
Beginning in 2007, beef production will continue increasing
through the end of the baseline period. As increased
numbers of cattle go on feed, more feed grains will
be needed.
Pork
production in 2005 is expected to be up 1 percent from 2004, and then continue
increasing through 2014. The greatest gains are forecast for 2006 at 1.8 percent
per year and 2008 at 1.5 percent. Production may slow during the remainder of
the baseline period, but still rise nearly 1 percent per year. The increase in
hog numbers will necessitate more feed grains, primarily corn. Broiler
production is projected to increase throughout the baseline period. With beef
production down in 2004, broiler production was up 4.2 percent. But growth will
slow to about 3 percent per year during the baseline. Thus, feed needs for the
broiler industry are expected to grow over the period. Feed
needs for turkey and egg producers are also expected to increase during the baseline
period. Projected turkey production is expected to be up about 2 percent annually
during 2005-14. Egg production is projected to increase about 1 percent per year
during the period. Milk production is projected to increase
slowly, around 2 percent annually through 2007/08, and then decline to near 1
percent growth in the out years. Dairy cow numbers are expected to continue their
long-term decline throughout the baseline period. Production gains are the result
of increased production per cow. As a result, feed needs are likely to increase.
Ethanol Use Continues to Grow.
Corn used for producing fuel alcohol has grown sharply
since the early 1980s. As a result, fuel alcohol has
become the largest component within the food, seed,
and industrial (FSI) use category. The volume of total
FSI has overtaken even corn exports in recent years.
Corn's use in fuel alcohol production depends on the
interaction of government incentives and policies, technology
development, corn prices, prices of coproducts from
ethanol production, and prices of energy substitutes.
Ethanol production expanded very rapidly
until marketing year 1995/96 (September-August), when there was a major contraction
due to tight corn supplies and record high corn prices. Since then, ethanol output
has rebounded, especially since methyl tertiary butyl ether (MTBE), a competing
oxygenate produced from methyl alcohol, was banned in many States and policies
have encouraged ethanol use. Policies are very important for
the expansion of ethanol production. A federal tax credit for ethanol blending,
currently 51 cents per gallon, is assumed to continue. However, the biggest factor
underlying the recent expansion has been the adoption of ethanol by California,
the Nation's largest gasoline market, after it prohibited the use of MTBE. The
need to ramp up production to meet mandated use has boosted production, especially
since New York and Connecticut have also banned MTBE. Ethanol is the principal
replacement oxygenate where reformulated gasoline is used, requiring 2-percent
oxygen by weight. Policy-influenced market conditions are also
critical determinants of ethanol production. More than half of all fuel ethanol
is blended into conventional gasoline as a fuel or octane enhancer. Prices of
ethanol relative to gasoline prices are a key component for determining how much
ethanol is blended. The remaining ethanol is used for blending into reformulated
gasoline, which will be important in California, New York, and Connecticut. It
is also used in oxygenated gasoline for the winter carbon monoxide program. (The
program requires the use of oxygenated gasoline for designated winter months.
The intent of the oxygenate is to offset the increased carbon dioxide levels emitted
from gasoline engines due to hard starting and lengthy warm-up periods in cold
weather). While use of oxygenates largely results from mandated
clean air requirements, fuel producers can choose among competing oxygenates based
on their relative prices. Some States offer incentives that also influence demand
for ethanol. For instance, Illinois has a sales tax exemption for ethanol, while
Minnesota has mandated a year-round minimum oxygen content requirement for all
gasoline sold.
Baseline Projections for U.S. Feed
Grains Supply and Use
U.S. feed grain supplies and use are expected to increase
over the baseline period, after a drop in 2005/06 from 2004/05 (because the trend
yields used in the analysis are lower than the actual yields for 2004).
Most Production Gains Expected from
Productivity. Feed grain production increases throughout
the projection period, as yield growth accounts for
most of the expanded output. Corn is expected to gain
in share of total feed grain production and use. Corn
area is projected to experience moderate growth over
the baseline period and oats may remain unchanged. Sorghum
and barley plantings are expected to decline slowly.
Net returns for all four feed grains decline sharply
the first year of the baseline because the trend yields
used in the analysis are lower than the actual yields
for 2004. Net returns for oats are nearly constant during
the projection period, while net returns for corn, sorghum,
and barley increase.
After
the first year of the baseline period, total feed grain use is projected to set
new records. By 2014, exports are expected to grow about 45 percent from the 58
million metric tons in 2004/05, a robust growth rate relative to the past two
decades. By 2009, exports are projected to surpass the old record set in 1979.
Improved growth in global imports is expected, and U.S. feed grain exports are
expected to encounter only moderately higher competition throughout the projection
period.
U.S.
ending stocks of feed grains are projected to decline slowly until 2011/12 then
increase and remain between 34 and 35 million metric tons. These ending stocks
are slightly below the average ending stocks in the 1990s of 41 million metric
tons. Productivity is projected to account for most of production growth, with
the remainder coming from increased plantings.
Corn Supply and Use to Grow. Corn
area is expected to grow and yields increase, resulting
in new record corn production. Use will likely also
set records as livestock herds grow, raising feed needs,
and industrial uses for corn expand. China becomes a
net importer in 2007/08 (see Baseline
projections for world feed grains trade), contributing
to projected exports of U.S. corn increasing throughout
the baseline.
Corn
prices in 2005/06 are expected to be higher than in 2004/05, reflecting supply
growing less than total use. At the onset of the baseline, domestic corn use is
strong, and continues expanding throughout the period. U.S. corn exports are also
expected to grow. The U.S. share of global corn trade is expected to increase,
mostly because of reduced exports and increased imports by China. Global corn
trade is expected to grow, given rising global meat demand. Planted
area for corn is projected to remain relatively large and grow slowly over the
baseline period, as use strengthens and prices improve. Corn competes mostly with
soybeans for land and is used extensively in rotations with soybeans. Corn area
grows relative to soybean area, as relative net returns are expected to favor
corn throughout most of the baseline. Gains in corn yields
are expected to continue over the entire baseline period, facilitated by genetic
improvements. Corn production is projected to increase, setting new records.
Increasing Meat Production Boosts Feed
and Residual Use. Feed and residual use is expected
to decline in 2005/06, the initial year, but grow throughout
the remainder of the projection period. Increasing U.S.
meat production and associated livestock (measured by
grain-consuming animal units) account for the rising
use of grain.
Despite its growth, direct feed use of corn is not as strong
as it would be without coproducts from ethanol production. Ethanol wet mills produce
corn gluten feed, corn gluten meal, and corn oil as coproducts, while dry mills
produce distiller's dried grains (DDG). The baseline assumes that each 56-pound
bushel of corn that goes into dry-mill ethanol production results in 17.5 pounds
of DDG as a coproduct. The protein
content of DDG for beef cattle is about 23 percent, compared to 48 percent
for soybean meal and about 10 percent for corn. The energy content of DDG falls
between that of corn and soybean meal. Thus, the baseline assumes that the DDG
coproduct of dry-mill ethanol production substitutes for about a 50-50 split of
corn and soybean meal in feed rations, or about 8.75 pounds each of corn and soybean
meal for each bushel of corn used for ethanol production.
Ethanol Production Keeps Corn use High.
Food, seed, and industrial (FSI) use of corn is anticipated
to increase throughout the baseline period, beginning
at a record level. Major growth is expected in ethanol
use because many States are banning MTBE and ethanol
is its principal replacement. Greater corn use is projected
in the baseline as the ethanol industry expands production.
Gains for high fructose corn syrup (HFCS) and most other
food and industrial components are projected to be smaller
than in the previous decade. Food and starch, other
segments of FSI use, are mature markets and projected
gains largely reflect population growth.
Projected
exports demonstrate growth compared with the 1980s and 1990s, but remain below
the record established in 1979/80 until the middle of the forecast period. World
corn imports grow because of increased meat production.
Ending
stocks of corn are expected to decline to around 1.1 billion bushels toward the
later part of the baseline period, but then increase. Prices strengthen from lows
in the early 2000s to $2.45 per bushel toward the end of the projection period,
as the stocks-to-use ratio declines slightly.
Sorghum Supply to Remain about Steady.
Growth in sorghum
production is expected to equal use, resulting in nearly
constant ending stocks. Acres planted are expected to
decline only slightly, but yields increase. Feed and
residual use will vary depending upon supply, but food,
seed, and industrial use (primarily ethanol production)
will increase.
Sorghum
production is projected to grow to 450 million bushels by 2014. This reflects
a slight decline in plantings but trend yield growth of 0.4 to 0.5 bushels per
year. Despite the projected yield growth during the baseline period, yields are
not expected to exceed 1994's record of 72.7 bushels per acre. Sorghum
exports decline during the baseline, especially in 2006-08 when reduced tariffs
on corn trade with Mexico lead to higher U.S. corn exports and lower sorghum shipments.
With reduced U.S. sorghum exports, increased feed and residual use is projected.
Food, seed, and industrial use rises slowly in the baseline, remaining record
high due to growth in ethanol production.
Barley Supplies Increase Modestly.
Rising yields are expected to modestly increase barley
production, reaching 255 million bushels by 2014. Planted
acreage declines slightly over the period, as barley's
net returns cannot compete for more area. Yield per
acre is expected to increase 0.6 bushels over the period,
in line with trend increases.
Food,
seed, and industrial use was held steady over the baseline, mainly because beer
production in the United States is expected to level off. Barley feed and residual
use increases slightly during the baseline period in line with production. Barley
exports are projected to be 15 million bushels per year, as shipments of feed
barley to the Middle East continue. Imports are expected to remain unchanged at
25 million bushels, because of malting barley imports from Canada. The average
barley price is projected to rise through the baseline, reaching $2.65 per bushel
by the end of the period.
Oats Plantings Unchanged. Supplies
grow modestly as increased yields and oat imports, principally
from Canada, supplement domestic oats
production. Food, seed, and industrial use is expected
to remain unchanged, with some rise in feed and residual
use, keeping ending stocks relatively constant.
The
declining long-term trend in oat acreage is projected to stabilize. With oat plantings
expected to remain constant during the baseline period, slow growth in yields
results in a 5 million bushel increase in production by the end of the period.
The crop will remain important in some rotations and as a cover crop. There is
also some modest growth in imports. Supplies drop in the beginning year of the
baseline because plantings and yields decline. Supplies grow in subsequent years
of the baseline, but do not reach the levels of 2004/05. Total use starts at 186
million bushels, increasing to 196 million due to higher feed use. Imports rise
from 85 million bushels to 95 million, or 36-37 percent of supply, making up the
difference between production and use. Feed and residual use ranges from 110 million
bushels to 120 million. Oat prices increase over the baseline period, and imports
supplement domestic supplies.
Baseline Projections
for World Feed Grains Trade
The USDA baseline also provides
projections for global trends in feed grain supply, use, and trade.
Expanding Consumption to Boost Corn
Trade. Increased global demand for meat is expected
to boost world consumption of feed
grains. However, production constraints, especially
limited area, will keep many traditional importing countries
from expanding production as rapidly as use, boosting
global trade from 102 million metric tons in 2005/06
to 131 million in 2014/15. Most of the growth is in
corn
trade, up from 78 million metric tons in 2005/06
to 104 in 2014/15. The U.S. share of corn trade is expected
to increase from 70.9 percent during 2005/06 to 72.7
percent by the end of the projection period.
As
recently as 2002/03, China was the second largest corn exporter. China, however,
is expected to limit exports and gradually increase imports of corn, becoming
a net importer by 2007/08. Corn area expansion in Argentina is expected to be
limited by profitable returns for soybeans. Area expansion is also expected to
be limited in other exporting countries such as South Africa and Thailand. As
Eastern European countries like Hungary join the European Union (EU), less corn
is exported outside of Europe. However, Brazil is expected to remain a significant
net exporter of corn because of attractive world prices and niche marketing. China
is key to the future of global corn trade. In recent years, China has maintained
corn exports, while reducing stocks when production fell below domestic use. Chinese
stocks are now thought to be reduced to levels that will limit future stock declines
because they would likely boost internal prices. Meat demand in China is expected
to rise because of strong income growth. Rapid gains in meat production are expected
to increase corn feed use. While corn yield growth is projected to rise less than
1 percent per year, area increases will be limited by higher returns from other
land uses. So by 2007, China becomes a net importer of corn. Nonetheless, northeast
China is expected to remain a surplus corn producing region and, because it is
so close to South Koreaone of the world's largest corn importersChina
is expected to continue exporting corn. However, southern China is further away,
and is expected to be an increasingly corn deficit region, boosting imports during
the baseline period. Growth in global corn imports over the
baseline period is not limited to China. Most corn importing countries are expected
to increase imports as meat production rises because of factors that limit the
growth in corn production. The largest increase in corn imports is expected for
Mexico, where a switch from sorghum to corn is expected on top of strong growth
in meat production. Imports by the rest of Latin America are expected to grow
only modestly, at about the pace of population growth. With stronger economic
growth, Egypt is expected to lead the growth in corn imports by North Africa and
the Middle East. With limited barley area, and increasing barley exports, Canada
is expected to increase corn imports to support meat production increases. Russia
and other former Soviet Union countries increase corn imports faster than Ukraine
increases exports, making the region a growing net importer of corn. However,
some markets, like Japan, are expected to reduce imports due to slow growth in
meat consumption combined with higher meat imports.
Barley Trade to Expand. Global
barley
trade is expected to expand slowly, from 15 million
metric tons in 2005/06 to over 17 million by the end
of the baseline. Demand for feed barley is expected
to grow in North Africa and the Middle East, where production
increases are limited by the climate, but imports by
Saudi Arabia are expected to be nearly flat. Imports
of barley by Saudi Arabia depend on rainfall and grazing
for sheep and camels. China leads import growth in barley
for malting. EU stocks are expected to limit the pressure
to subsidize EU barley exports, so EU barley exports
are expected to remain near 3 million metric tons throughout
the baseline. Barley exports by Australia, Canada, and
Ukraine are expected to increase. U.S. barley trade
is expected to remain small.
Sorghum Trade to Decline. Sorghum
trade is expected to decline from nearly 7 million
metric tons in 2005/06 to less than 6 million in 2008/09
because of reduced imports by Mexico, but then show
some recovery by the end of the baseline. Mexico's current
system of variable rate quotas for corn with "cupos"
for over quota imports tends to discourage corn imports
and boost sorghum imports that do not have quotas. However,
under the North American Free Trade Agreement, Mexican
corn tariffs are phased down and disappear by 2008.
As corn tariffs are reduced and then eliminated, Mexican
feed compounders are expected to shift to corn, away
from sorghum. Japan is also expected to reduce sorghum
imports slightly as feed grain imports decline.
Other
coarse grain trade is expected to grow very slowly over the baseline period, with
a small increase in oats trade nearly offset by reduced rye trade. EU policy is
expected to maintain oat production and exports, but a drop in EU rye production
(due to reforms of the EU's Common Agricultural Policy that ended rye intervention
prices) and exports is expected. Canada will remain the main supplier of imported
oats to the U.S. market.
Industry Prospects Are Good
Yields per acre for U.S. feed grains will continue to increase, and corn yields
will grow at the fastest rate. Rising corn yields help boost net returns, keeping
planted area up. Slower yield growth for barley and other feed grains makes them
less attractive to producers, leading to a slight decline or no change in acres
planted over the period. Corn production is projected up 16 percent over the 2005-14
period, sorghum is up 3 percent, barley up 6 percent, and oats are up 5 percent.
Strong
use both domestically and worldwide keeps feed grain prices above U.S. loan rates
during most of the baseline, reducing government farm program costs. Use of corn
for corn sweeteners is expected to grow at the rate of population increase. Use
of corn to produce ethanol for fuel will continue to climb. Feed and residual
use will also expand over the period as livestock and poultry production continue
to increase. Increased global demand for meat is expected to
boost world consumption of feed grains. Global trade in feed grains is expected
to rise because many traditional importing countries will not be able to increase
production as much as the gains in consumption. Most of the growth in trade is
in corn and the U.S. share of the market is expected to increase.
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