USDA Feed Grains Baseline, 2004-13
The gross domestic product is expected
to grow both 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. Bans on methyl tertiary butyl ether (MTBE)
in some States are expected to boost the use of ethanol
in gasoline to comply with Clean Air Act requirements
for oxygenate in gasoline. Most ethanol is made from
grains, creating an increasing use for feed grains.
Estimated net returns for corn are expected to be more
favorable than the other feed grains. As a result, acres
planted to corn are forecast to increase slightly but
sorghum, barley, and oats 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 USDA’s
baseline projections.
Each year, USDA updates its 10-year projections
of supply and utilization for 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 summarizes the analysis
underlying the feed grains baseline projections for
2004-13. 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. The U.S. feed grain sector is expected to face a period
of firm growth throughout the 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 and their
acreage will decline.
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 coarse
grain trade from 105 million metric tons in marketing
year 2004/05 (October-September) to 133 million in 2013/14.
Most of the growth is in corn trade, up from 80 million
metric tons in 2004/05 to 103 in 2013/14. Moreover,
the U.S. share of corn trade is expected to increase from
less than 60 percent during 2000/01-2002/03 to 70 percent
by later years of the projection period. Global barley
trade is also expected to expand, from less than 16
million metric tons in 2004/05 to over 20 million by
the end of the baseline, but U.S. barley trade is expected
to remain small. Sorghum trade is expected to decline
from about 7 million metric tons to 6 million during
the baseline period because of reduced imports by Mexico,
which shift to corn. Other coarse grain trade is expected
to stagnate over the baseline period, with a small increase
in oats trade offset by reduced rye trade.
Supply
Supply is limited by the amount of land
available for planting and by yields of the crops.
Corn Acres to Increase.
The number of acres planted to corn is expected to total
79.5 million in 2004 and increase to 81 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, 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 net
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 plantings in South America.
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 can fix nitrogen on their roots 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.
Corn Yields Continue to Rise.
For the baseline analysis, yields for corn were determined
by calculating the trend growth in yields since 1960.
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, along with other advances
such as better targeting of fertilizer needs.
A similar analysis was performed for the other feed grains, but
their growth is considerably slower than corn. Sorghum yields are
expected to increase by 0.4 or 0.5 bushels per year. Barley yields
are projected up by 0.6 bushels per year, while oats yields are
up 0.4 bushels per year.
Demand
Demand for feed grains is derived from
the demand for feed, which is derived from the demand
for meat, milk, and eggs.
Macroeconomic Growth Indirectly
Affects Feed Grain Use. The baseline assumes
that U.S. gross domestic product (GDP) growth improves
in the near term (increasing to 3.3 percent in 2004
and 3.5 percent in 2005) as the economy continues to
recover from the economic slowdown in 2001 through early
2003. U.S. growth then returns to a longrun sustainable
rate near 3.0 percent in 2006. Ongoing U.S. technological
advances associated with computing and telecommunications
will provide support for worldwide economic growth throughout
the 2004-2013-projection period. As the U.S. economy recently
has been showing solid demand growth in technology investment,
other economies are expected to follow.
A similar pattern is expected for global economic
growth, with sustained gains projected in the longer term for
most countries. Despite modest European growth expected in 2004,
most of the world will be moving much closer to normal economic
growth with trend rates in 2006 and beyond. The modest expected
decline in real (adjusted for inflation) oil prices in 2004 will
give an extra boost to 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 their
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. Except for beef early
in the baseline, production of U.S. livestock products
is expected to increase during the baseline period.
(The baseline projections were completed prior to the
presence of bovine spongiform encephalopathy (BSE, or
mad cow disease) in an adult Holstein cow in Washington
State in December 2003.) U.S. beef production is expected
to be down in 2004 because of reduced cattle numbers
in prior years and low calf crops. In addition, with
normal weather, heifers are likely to be held back to
rebuild the herds. The combination of low calf crops
and replacement heifers will also reduce beef production
in 2005 from 2004. Beginning in 2006, beef production
will increase from 2005 and continue increasing through
the end of the baseline period. As increased numbers
of cattle go on feed, more feed grains will be needed
to finish
the cattle.
Pork production in 2004 is expected to be about even with 2003,
and then begin increasing in 2005. The greatest gains are forecast
for 2007 and 2008 at 1.8 percent per year. Production may slow during
the remainder of the baseline period, but still increase nearly
1 percent per year. The increase in hog numbers will necessitate
more feed, primarily corn.
Broiler production is projected to increase throughout
the baseline period. With beef production down in 2004 from 2003,
broiler production is expected to be up 2.5 percent; then, growth
slows to about 2 percent per year during the remaining years.
Thus, feed needs for the broiler industry are expected to grow
during the baseline 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 1 percent during the period,
with production growing 1.6 percent in 2004 and 2005, then slowing
to 0.9 percent at the end of the period. Egg production is projected
to increase 1.7 percent in 2005, then slow to about 1 percent.
Milk production is projected to increase slowly, around 1 percent
in the early years of the baseline, then rise to near 1.5 percent
in the out years. 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 fuel alcohol has grown sharply since the
early 1980s. As a result of this growth, fuel alcohol
has become the largest component within the food, seed,
and industrial (FSI) use category; the volume of total
FSI has overtaken corn exports in recent years. Corn’s
use in fuel alcohol 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 found in U.S. groundwater and policies have encouraged
ethanol use.
Policies are very important for the expansion of
ethanol production. In 1998, the U.S. Congress extended
the federal tax credit of 54 cents per gallon for ethanol
blending, which was scheduled to expire in 2000, to
2007, but specified 1-cent reductions in 2001, 2003,
and 2005 to settle at 51 cents. The bioenergy
program helped boost ethanol production in 2001
by providing payments for additional production, thereby
reducing input costs for plants that expanded output.
The 2002 Farm Act extended this program through fiscal
year 2006. 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
for those States that use reformulated gasoline, 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. (A program that requires
the use of oxygenated-gasoline
for designated winter months. The intent of the oxygenate is
to offset the increased CO2 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 ethano, 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.
Most Production Gains Expected
from Productivity. Feed grain production increases
throughout the projection period, as yields account
for most of the expanded production. Corn is expected
to gain in share of total feed grain production and
use. Corn area is projected to experience minor growth
over the baseline period. Sorghum plantings are expected
to decline slowly, while planted area for barley and
oats declines slightly. Net returns for sorghum, barley,
and oats are nearly constant during the projection period,
while net returns for corn increase.
Throughout the baseline period, total feed grain use is projected
to set new records. Exports are expected to grow about 50 percent
from the 53 million metric tons in 2003/04, a much more robust growth
rate than 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
reduced competition throughout the projection period.
U.S. ending stocks of feed grains are projected to
move in a narrow range throughout the baseline period,
between 38 and 34 million metric tons. These ending
stocks are below the average ending stocks in the 1990s
of 41 million metric tons or the average ending stocks
in the 1980s of 85 million metric tons. The 1980s were
characterized by large stockholding due to government
programs. Prices are expected to remain well above loan
rates. 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 2009/10 (see international writeup),
contributing to projected exports of U.S. corn increasing
throughout the baseline.
Corn prices in 2004/05 are expected slightly
higher than in 2003/04, reflecting total use growing
slightly more than supply. 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. Also 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 and farming practices,
such as timely planting and effective input use. Corn production
is projected to increase, setting new records.
Increasing meat production boosts feed and residual
use. Feed and residual use is expected to remain level
in 2004/05, the initial year, but grow throughout the
remainder of the projection period. Level feed and residual
use in 2004/05 is due to reduced numbers of cattle on
feed. Increasing U.S. meat production and associated livestock
(measured by grain-consuming animal units) account for
the rising use of grain.
Despite its growth, feed use is not as strong as it would be without
coproducts from the production of ethanol. 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. In addition, corn
use is boosted in the initial years of the baseline
by the bioenergy program. Policy is a critical determinant
for the quantity of corn used for ethanol and different
policies could drastically change the use of ethanol
in fuels. Gains for high fructose corn syrup (HFCS)
and most other food and industrial components are projected
to be smaller than in most of 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, when China becomes
a net importer. World corn imports grow because of increased livestock
and poultry production.
Ending stocks of corn are expected to decline to around 1,149
million bushels early in the baseline period, then increase.
Prices strengthen from lows in the early 2000s to $2.35 per
bushel toward the end of the projection period, as the stocks-to-use
ratio declines slightly.
Sorghum Supply to Expand Slowly.
Growth in sorghum
production is expected to equal use, resulting in ending
stocks remaining about the same. Acres planted are expected
to decline, but yields increase. Feed and residual use
as well as food, seed, and industrial use (primarily
ethanol production) will increase.
Sorghum production is projected to grow to 530 million bushels
by 2013. This reflects a slow decline in plantings but trend yield
growth of 0.4 to 0.5 bushels per year. Even with the growth, sorghum
yields during the baseline period do not 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 lower sorghum
shipments. With reduced exports, increased feed and residual
use are projected. Food, seed, and industrial use rise slowly
in the
baseline, remaining record high due to growth in ethanol production.
Barley Supplies Increase Modestly.
Increasing yields are expected to modestly increase
barley
production, reaching 290 million bushels by 2013. Planted
acreage declines 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.
Beer production is projected to increase with population growth,
boosting food, seed, and industrial use. Barley feed and residual
use remains mostly constant during the baseline period in line with
production. Barley exports are projected to be 30 million bushels
per year, as shipments of feed barley to the Middle East continue.
Imports are expected to increase slightly to 40 million bushels,
because of malting barley imports from Canada. The average barley
price is projected to rise through the baseline, reaching $2.55
per bushel by the end of the period.
Oats Plantings Decline.
Oat imports principally from Canada supplement declining
domestic oats
production. Slow growth in food, seed, and industrial
use, with some rise in feed and residual use, keep ending
stocks relatively constant.
The declining long-term trend in oat acreage is projected
to continue. The crop will remain important in some rotations
and as a cover
crop. Production is projected to decline from 130 to 120 million
bushels over the period, while total use starts at 226 million
bushels, increasing to 242 million. Imports rise from 100 million
bushels
to 115 million or 33 to 37 percent of supply, making up the difference
between production and use. Imported oats are particularly important
for food and specialty feed use. Food use grows very slowly reflecting
population increases. Feed and residual use ranges from 150 million
bushels to 155 million. Oat prices remain constant over the baseline
period, as 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 105 million metric tons in 2004/05
to 133 million in 2013/14. Most of the growth is in
corn
trade, up from 80 million metric tons in 2004/05
to 103 in 2013/14. The U.S. share of corn trade is expected
to increase from 60 percent during 2000/01-2002/03 to
over 70 percent by the latter years 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 2009/10. 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 EU demand for corn that
has not been genetically modified.
China is a 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. Much of the excess stocks are thought
to be liquidated, so future stock declines will be limited because
they would likely boost internal prices. Meat demand in China
is
expected to increase 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 for other
uses
for the land. However, the Northeast is expected to remain a
surplus corn producing region and, because it is so close to
South Korea—one
of the world’s largest corn importers—China is expected to
continue to export corn. However, Southern China is further away,
and is expected to be an increasingly corn deficit region, boosting
imports during the baseline period. So by 2009, China becomes
a net importer of corn.
Growth in corn imports over the baseline period is not limited
to China. Some markets, like Japan, are expected to reduce imports
due to slow growth in meat consumption combined with increased meat
imports. But most corn importing countries are expected to increase
imports as meat production rises because of limits on corn production
growth. 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 global 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 maintain meat production
increases. Russia and other former Soviet Union countries increase
corn imports faster than Ukraine increases exports, making the region
an increasing net importer of corn.
Barley Trade to Expand.
Global barley
trade is also expected to expand, from less than
16 million metric tons in 2004/05 to over 20 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.
China leads import growth in barley for malting. EU
exports are expected to be only 3.3 million metric tons
in 2004/05, compared to over 10 million as recently
as 1999/2000. Low stocks are expected to limit the pressure
to subsidize EU barley exports. However, EU barley exports
are expected to grow to almost 6 million metric tons
by the end of the baseline. Barley exports by Australia,
Canada, and Ukraine are also expected to increase.
U.S. barley trade is expected to remain small. Sorghum Trade to Decline.
Sorghum
trade is expected to decline from about 7 million
metric tons to 6 million during the baseline period
because of reduced imports by Mexico. The 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, the 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 stagnate
over the baseline period, with a small increase in oats
trade 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 oats to the US market.
Industry Prospects are Good
Yields per acre for feed grains will continue to increase,
but corn yields will grow at the fastest rate. Rising corn
yields help boost net returns, keeping planted area up. Slower
yield
growth for the other feed grains makes them less attractive
to producers, leading to slightly fewer acres planted over
the period.
Corn production is up 15 percent over the baseline period,
sorghum—because of the effects of a drought in the base
period—is up 29 percent,
barley up 5 percent, but oats are down 14 percent.
Strong use both domestically and worldwide keeps feed grain prices
above loan rates, 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
is expected to increase 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 is expected to
increase.
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