Corn: Market Outlook

Overview Background Trade Market Outlook Policy Recommended Readings Recommended Data Related Links

Feed Outlook

USDA Feed Grain Baseline, 2009-18

Each year, USDA updates its 10-year projections of supply and utilization for major field crops grown in the United States, including feed grains(corn, sorghum, barley, and oats)(see Overview of the USDA Baseline Process. for more information). 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 analysis underlying the feed grain projections for 2009-18. Details about projections for the U.S. macroeconomy, other U.S. crops, U.S. livestock, farm income and food prices, and U.S. and global agricultural trade, which are critical components of this analysis, can be found in the Agricultural Baseline Projections briefing room.

The discussion is divided into five sections:

• Supply Considerations
• Demand Considerations
• Projections for U.S. Feed Grain Supply and Use
• Projections for World Feed Grain Trade
• Industry Prospects Are Good

In the projections, gross domestic product (GDP) is expected to grow in the United States and around the world after recovery from recession, raising incomes and boosting demand for meat and fuels. A growing livestock industry will need increasing supplies of feed grains.

Crude oil prices rose sharply from late 2002 through mid-2008, largely reflecting increased crude oil demand because of world economic gains and manufacturing growth in China, India, and other countries in Asia. The weakening of U.S. and global economies at the end of 2008 and the resulting decline in demand for petroleum and other energy supplies pushed crude oil prices down more than 70 percent from the peak values in mid-2008. Crude oil prices are assumed to rebound in 2009 and average about $60 per barrel. Prices are then assumed to increase over the remainder of the projection period rising somewhat faster than the general inflation rate as global economic activity rebounds. By the end of the projection period, the refiner acquisition cost for crude oil imports is assumed to be near $100 per barrel.

Although corn-based ethanol production in the United States is projected to slow over the next decade, the large expansion in recent years keeps this use of corn high. The projections assume the tax credits available to blenders of biofuels (ethanol and biodiesel) and the ethanol import tariff remain in effect through the 10-year period. These factors, along with projected increases for crude oil prices, contribute to favorable returns for ethanol production, providing economic incentives for a continued expansion in production capacity over the next several years, primarily produced from corn. Projected net returns for corn per acre are expected to be more favorable than the other feed grains. As a result, acres planted to corn, the primary feed grain in the United States, are forecasted to increase slightly. In contrast, projected plantings of barley and oats remain unchanged, but sorghum acres are projected to 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 grain importing countries from expanding feed grain production as rapidly as use, boosting global coarse grain trade. (Coarse grains make up a common trade category that includes corn, sorghum, barley, oats, and rye.) Most of the growth in global coarse grain trade is in corn; however, the U.S. share of corn trade is expected to decrease. Global barley trade is expected to expand but remain small. Sorghum trade, even smaller than that for barley, is expected to decline in the short term due to reduced imports by Mexico, but later regain initial trade levels. In combination, these factors support longer run increases in global consumption and trade, with prices, although lower than in early 2008, remaining at historically high levels.

Supply Considerations

Several factors underlie the long-term trends that will determine the size of U.S. feed grain crops during 2009-18.

Corn acres to increase slightly. U.S. corn planted area is expected to increase to 90 million acres by the end of the projection period. Although the number of U.S. acres available for field crop production is limited, higher expected net returns for corn relative to other crops supports expanding corn plantings during the period. Net returns are determined by yields, production costs, prices, and agricultural policy.

Among the feed grains, corn has the highest return above variable cost. Soybeans, while being an excellent rotation crop with corn, are also the major competitor with corn for acreage. Realized net returns for soybeans were above those for corn in marketing years 1996/97 through 2001/02 and also in 2006/07. Soybean planted area expanded during these years. Net returns for soybeans are expected to be below those for corn throughout the projection period, due to lower relative prices caused by increased corn demand by the ethanol industry.

There are benefits to growing crops that may not be reflected in a single year's cost and returns analysis. 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 benefits from increased fertilizer use and carryover fertilizer benefits soybeans in the following year. Likewise, soybeans roots host bacteria that convert nitrogen from the air into a form usable by plants. 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 remains an important rotation crop as soybeans planted following soybeans typically suffer disease-related yield losses.

Corn yields continue to rise. The projected 2009/10 corn yield is based on the simple linear trend since 1990. The longer term trend for 2010/11 and later years reflects an annual yield increase of 2.0 bushels per acre per year, slightly lower than the 1990-2008 yield trend. Increases in corn yields have been driven by improvements in plant genetics, machinery, and cultivation practices that have allowed for faster, more precise planting and earlier harvesting. The latest round of advances in genetics and planting technology is expected to be fully adopted by the early years of the projections. Thus, longer term yield gains are expected to be somewhat slower than during the late 1990s and early 2000s. Gains continue to be supported by improved genetics, including advances in plant utilization of water and fertilizer.

Projected yields for barley and oats are based on the simple trend in yield growth since 1960, which is considerably slower than the trend for corn. Barley yields are projected up by an average 0.6 bushels per year, while oats yields are up an average 0.4 bushels per year. Sorghum yields are projected based on a 10-year average (excluding the extreme low yields observed in 2002 and 2003 and the extreme high yield in 2007), and are expected to be flat throughout the projection period.

Demand Considerations

Over the next 10 years, there are several long-term trends that underlie the outlook for domestic and foreign demand for U.S. feed grains and feed grain products.

Macroeconomic growth indirectly affects feed grain use. In the projections, the U.S. and world recessions are assumed to end in 2009 and credit and housing industries are expected to turn around. In the projections, the U.S. economy is expected to grow by 1.3 percent in 2008 and then contract by 0.5 percent in 2009. The U.S. share of global GDP declines to 25 percent in 2009 from 27 percent in 2007. Growth resumes in 2010, but only at a rate of 2.7 percent. After 2010, U.S. growth moves back toward a sustainable rate near 3 percent. Global economic growth is then assumed to rebound to a 3.4-percent average growth rate for 2010-18. The projections assume slowing rates of growth in developed countries and continued strong growth in developing countries and countries of the former Soviet Union.

The return of global economic growth after 2009 and continuing, although slowing, population growth is expected to boost food demand. The longer term increases in global purchasing power and population, competing against demand for biofuels and other domestic uses, are important factors shaping the projections for world trade, U.S. agricultural exports, and for commodity prices. Population growth rates in most developing countries remain above those in the rest of the world. As a consequence, the share of world population accounted for by developing countries increases to nearly 84 percent by 2018, up from 78 percent in the 1980s and 80 percent in the 1990s.

As economies expand and personal incomes grow, consumers shift to more meat in their diets and this requires more feed grains for meat production. Diets in the U.S. 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 countries. As a result, the long-term projections are expected to expand world trade in feed grains and increase exports from the United States.

Livestock products to increase long term, boosting feed grain use. Projections for the livestock sector include production adjustments to high grain and soybean meal prices in 2008. Production of meats declines over the next several years, as a result. Once the sector adjusts, lower overall production combined with strong domestic demand and some strengthening in meat exports result in higher prices and higher returns, providing economic incentives for expansion in the livestock sector and resumption in meat production gains.

Distillers' grains, a coproduct of dry-mill ethanol production, can be used in livestock rations, partially substituting for corn and sometimes for soybean meal. However, distillers' grains can more easily be used by ruminants (such as cattle) compared to monogastric animals (such as hogs and chickens). Beef cattle feedlots located close to ethanol plants are best situated to benefit from a steady supply of distillers' grains, also reflecting the ability of those animals to use the wet form of distillers' grains.

Higher grain prices and drought in recent years hold down cattle inventories, pushing U.S. beef production down in 2009-12. Production then rises in the remainder of the projection period as returns improve and herds are rebuilt. The total cattle inventory drops to under 94 million head before expanding to about 97 million at the end of the decade. Rising slaughter weights also contribute to the moderate expansion of beef production beyond 2012. The relative cost of feeding cattle in feedlots versus on pasture will result in stocker cattle remaining on pasture to heavier weights before entering feedlots. As increased numbers of cattle go on feed in feedlots, more feed grains will be needed.

Pork production in 2009 is expected to be down 1.6 percent from 2008 and it continues to decrease through 2011 in response to high feed prices. Moderate growth is expected in late 2011 and throughout the remainder of the projections period as higher hog prices improve returns. The greatest gains are forecast for 2014 and 2015 at 2.1 percent per year. The eventual increase in hog numbers will necessitate more feed grains, primarily corn.

Broiler production is projected to decrease about 1.1 percent per year in 2009-10 as the industry continues to adjust to high feed costs. Starting in 2011, broiler production will increase to 2.4-percent annual growth in 2012 and gradually decline to 1.4-percent growth by the end of the projection period. Poultry is the most efficient feed converter, and thus, will have the greatest increase in production across the livestock sector. As broiler production expands, feed needs of the broiler industry are expected to grow over the period.

Feed needs for turkey production are expected to decrease during the first 2 years of the projections and then moderately increase after 2010. Annual increases in turkey production peak in 2015 at 1.8 percent then slow to 1 percent by the end of the period. Growth in demand for turkey products is supported by rising per capita consumption of all meat products over the longer term. After slowing in 2008, egg production is projected to grow slightly each year with increases in 2012 and later maintained at a 1-percent-per-year rate.

Milk production is projected to increase slowly throughout the projection period. Dairy cow numbers are expected to continue their long-term decline during the next 10 years, but annual herd reductions are more moderate compared with past decades. Production gains are the result of increased production per cow, although some slowing in these gains occurs in 2008-10 in response to higher feed cost. Over the long run, feed needs are likely to increase.

Ethanol use continues to grow. Corn used for producing fuel alcohol (i.e., ethanol) has grown sharply since the early 1980s. Production of corn-based ethanol has grown from less than 3 billion gallons in 2003 to over 9 billion gallons in 2008. As a result, fuel alcohol has become the largest component of the food, seed, and industrial (FSI) use category. Fuel alcohol production has overtaken exports in recent years as the second- largest use category for corn behind feed and residual use. By the end of the projection period, ethanol production accounts for about 35 percent of corn use, and corn-based ethanol production exceeds 9 percent of annual gasoline consumption.

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. More than half of all fuel ethanol is blended into conventional gasoline as a fuel or octane enhancer. Ethanol is also used in reformulated gasoline blends required in designated regions under the Clean Air Act. Ethanol serves as an oxygenate replacing methyl tertiary-butyl ether (MTBE) in these reformulated blends. Prices of ethanol relative to gasoline remain a key factor in determining how much ethanol is blended.

Policy incentives underlie the interest in, and greatly impact the expansion of, ethanol production. The Energy Policy Act of 2005 (P.L. 109-58) established a renewable fuel standard (RFS), which mandated the use of renewable fuels in gasoline. The U.S. Government blender tax credit, various State production subsidies, and some States' required use of fuel alcohol, as well as the cost and availability of substitute fuel additives, affect the amount of ethanol used.

The Energy Independence and Security Act of 2007 (P.L. 110-140) required the use of 9.0 billion gallons of renewable fuels in 2008, increasing each year to 36 billion gallons in 2022. In addition, the Act requires that an increasing share of the mandate be met with advanced biofuels, which are biofuels produced from feedstocks other than cornstarch (and with 50-percent lower lifecycle greenhouse gas emissions than petroleum fuels). Potential advanced biofuels include ethanol from cellulosic material (such as perennial grasses and municipal solid waste), ethanol from sugarcane, and diesel fuel substitutes produced from a variety of feedstocks.

These projections assume the tax credit available to blenders of ethanol and the 54-cent-per-gallon tariff on imported ethanol used for fuel remain in effect. While expansion in the ethanol industry continues, more moderate gains for corn-based ethanol are projected, largely reflecting growth in overall gasoline consumption in the United States.

The continued presence of ethanol demand in the corn sector, in combination with other long-term factors, holds prices for corn and many other crops well above their historical levels, although season average annual prices are not projected to reach the extreme highs seen in the first half of 2008.

Projections for U.S. Feed Grain Supply and Use

The long-term projections for U.S. feed grains for 2009-18 (corn, sorghum, barley, and oats; data are in Excel spreadsheets) were heavily influenced by ethanol production and increased global consumption.

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, rising to 90 million acres by 2011 and remaining at or above that level over the rest of the decade. Area for barley and oats is projected to remain unchanged. Sorghum plantings are expected to decline slowly.

After the first year of the projections, total feed grain use is projected to set new records. By 2018/19, exports are expected to grow about 19 percent from 52 million metric tons in 2008/09, supporting growth in global meat production. However, U.S. exports are expected to remain below the high levels attained in 2007/08 during the next 10 years. Improved growth in global imports is expected, and U.S. feed grain exports are expected to encounter only moderately higher competition throughout the period.

U.S. ending stocks of feed grains are projected to increase slowly after 2009/10 to reach 44.6 million metric tons by the end of the projection period. These ending stocks remain slightly below the average ending stocks in the 1990s of 39.7 million metric tons until 2017/18, when ending stocks are projected to reach 42.7 million metric tons. Productivity is projected to account for most of production growth throughout the decade.

After a decline in 2008, corn acreage increases to 90 million acres by 2011 and remains at or above that level over the remainder of the projection period. A gradual shift to corn away from other crops reflects the high levels of domestic corn-based ethanol production and gains in feed use and exports that keep corn demand and producer returns strong. In the projections, corn area grows relative to soybean area, as relative net returns are expected to favor corn throughout most of the decade. Gains in corn yields are expected to continue over the entire projections period, facilitated by genetic improvements.

Increasing meat production boosts feed and residual use. Feed and residual use of corn bottoms out in the initial years of the projections due to reduced meat production and increased feeding of distillers' grains. Increases in feed use rise somewhat faster later in the period as meat production picks up and growth in availability of distillers' grains slows with the reduced pace of corn-based ethanol expansion.

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 distillers’ dried grains (DDG). The projections assume that each 56-pound bushel of corn that goes into dry-mill ethanol production results in 17.5 pounds of DDG as a coproduct.

Ethanol production keeps corn use high. Food, seed, and industrial use of corn is anticipated to increase throughout the next 10 years. Greater corn use is projected as the ethanol industry expands production. Consumer dietary concerns and other changes in tastes and preferences limit increases in the combined use of corn for high fructose corn syrup, glucose, and dextrose to half the rate of population gain. Growth in starch production is expected to be limited in the first part of the projection period by weaker demand for paper and building materials due to poor economic conditions.

U.S. corn exports rise in response to stronger global demand for feed grains to support growth in meat production, but the U.S. share of global corn trade falls slightly in the projections. Increasing domestic corn use for ethanol and larger competing supplies of feed wheat are expected to limit growth in U.S. corn exports.

Ending stocks of corn are expected to decline in the early years of the projections then gradually grow to 1.6 billion bushels by the end the period. Corn prices initially fall from the high level of 2008/09 as increases in ethanol production slow and corn stocks build somewhat. In the longer run, corn prices remain higher than their pre-2006 levels due to continued demand for corn to produce ethanol as well as growth in feed use and exports.

Sorghum supply to decrease slightly. Sorghum production is expected to decrease over 6 percent in 2009/10 from 2008/09 and then decline more slowly though the end of the period. Total use declines with production, resulting in nearly constant ending stocks. Acres planted are expected to decline only slightly, but yields remain unchanged. Feed and residual use will vary depending upon supply, but food, seed, and industrial use (primarily ethanol production) is projected to remain constant at 70 million bushels per year.

Sorghum exports increase during the projections as a result of lower prices in comparison to corn with rising exports into Mexico as their livestock feeding needs increase. With increased U.S. sorghum exports, decreased feed and residual use is projected.

Barley supplies increase modestly. Rising yields are expected to modestly increase barley production, reaching 250 million bushels by 2018/19. Planted acreage remains nearly unchanged over the period, as barley's net returns cannot compete for more area. Yield per acre is expected to increase 0.6 bushels per year over the decade, in line with trend increases.

Food, seed, and industrial use increases slightly in the projections with U.S. malt barley production expected to remain steady. Barley feed and residual use increases slightly during the decade in line with production. Barley exports are projected to be 25 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 decline from recent highs, reaching $3.95 per bushel by the end of the period.

Oats plantings unchanged. The declining long-term trend in oat acreage is projected to stabilize, as the crop remains important in some rotations and as a cover crop. With oat plantings expected to remain constant during the projections, slow growth in yields results in a 5-million-bushel increase in production by the end of the period.

Supplies drop in the beginning year of the projections because plantings decline and yields remain nearly unchanged. Supplies grow in subsequent years due to moderate growth in yields starting in 2010/11. Total use increases to 201 million bushels due to higher food, seed, and industrial use during the projection period. Imports are projected at 100 million bushels, representing 38 percent of supply, making up the difference between production and use. Feed and residual use ranges from 115 million bushels to 120 million. Ending stocks are expected to rise until 2011 and then continue to decrease toward the end of the period. Oat prices decrease over the decade, and imports supplement domestic supplies.

Projections for World Feed Grains Trade

USDA's long-term projections also provide estimates for global trends in feed grain trade (coarse grains, corn, sorghum, and barley; data are in Excel spreadsheets).

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 106.7 million metric tons in 2008/09 to 129.30 million in 2018/19. Most of the growth is in corn trade, up from 81.9 million metric tons in 2008/09 to 100.1 in 2018/19. The U.S. share of corn trade is expected to decrease from 58.9 percent in 2008/09 to 56.5 percent by the end of the projection period.

China is important for the future of global corn trade. As recently as 2002/03, China was the second-largest corn exporter. However, the country is expected to limit exports and gradually increase imports of corn, becoming a small net importer by the end of the projection period. 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. Nonetheless, northeast China 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 exporting corn. However, southern China is expected to be an increasingly corn-deficient region, boosting imports during the next decade.

Corn area expansion in Argentina is expected to be limited by profitable returns for soybeans and higher export taxes on grains. The European Union (EU) becomes a more competitive corn exporter due to increases in area and yields, which enable it to more than double shipments during the projections. Exports from non-EU countries are also projected to climb steadily.

Brazil is expected to remain a significant net exporter of corn because of attractive world prices and niche market demand in the EU for grain that is not genetically modified. In the last several years, Brazil has targeted the EU market for non-genetically modified grain. This ability is assumed to diminish as Brazil legalizes planting of genetically modified corn varieties and the EU reduces imports. Also, strong growth in domestic demand from its livestock and poultry sectors and the profitability of growing soybeans limits corn exports.

Growth in global corn imports over the projections period is not limited to China. Most corn-importing countries are expected to increase imports as meat production rises and as corn production growth is limited by several factors. Mexico's corn imports are projected to rise from about 9 million metric tons to 11.5 million metric tons in 2018/19. With the liberalization of U.S.-Mexico corn trade complete—as part of the North American Free Trade Agreement (NAFTA), future growth in Mexican corn imports will be influenced by factors other than NAFTA, such as rising feed demand from Mexico's poultry sector.

Steady longrun growth in the livestock sectors of developing countries in Latin America, Asia, North Africa, and the Middle East is projected to account for much of the growth in world coarse-grain imports during the next decade. Canada is expected to increase corn imports to support a rise in domestic meat production. Meanwhile, Canadian barley exports are projected to increase, although barley acreage will be limited due to expansion of canola production in Canada.

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, South Korea, and Taiwan, are expected to have no growth in corn 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 19.8 million metric tons in 2008/09 to over 22.2 million by the end of the projections. Demand for feed barley is expected to grow in North Africa and the Middle East, where production increases are limited by climate. The amount of barley imported by Saudi Arabia, the world's largest barley importer, is projected to grow over the period, accounting for 36 percent of the growth in world barley trade.

International demand for malting barley is boosted by strong growth in beer consumption in many developing countries, notably China which is the world's largest malting-barley importer. China's demand for beer is rising steadily due to growth in incomes and population.

EU barley exports to non-EU countries are projected to climb nearly 30 percent to 7 million metric tons over the projection period, and account for 30 percent of world trade. Barley exports by Australia, Canada, and Ukraine are expected to increase. U.S. barley trade is expected to remain small.

Sorghum trade to increase long term. World sorghum trade, which averaged nearly 6.7 million metric tons during the last decade, declines to 5 million metric tons in the early years of the projections before rising to 7 million metric tons at the end of the period. Sorghum trade is driven mostly by U.S. exports to Mexico and Japan. Mexico's sorghum imports are projected to increase to nearly 4 million metric tons by 2018/19. Japan imports a fairly constant volume of sorghum (1.3 million metric tons) throughout the decade to maintain diversity and stability in its feed-grain supplies.

Other coarse-grain trade is expected to grow very slowly over the projections, 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 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 2009-18 projection period. Corn production is projected up 15 percent over the next decade, barley up 9 percent, and oats are up 5 percent. Sorghum production is down 7 percent during the period, due to increased production of corn and other competing crops.

Strong use both domestically and worldwide keeps feed grain prices at historically high levels, but down from record highs attained in 2007/08. Use of corn for corn sweeteners is expected to grow at the half 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 continues to increase in the long term. As ethanol production continues to expand, livestock producers will feed more distillers' grains and other ethanol co-products to livestock, which will help offset corn feed demand.

After rebounding from the current recession, 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. However, the U.S. share of world feed grain trade declines slightly over the next decade as increasing domestic corn use for ethanol limits growth in U.S. corn exports.