What is in this article?:
• “It’s an ethanol story — that’s the world we live in with feed prices,” says Mark Welch, economist with Texas A&M University.
• Other factors are supporting what is happening in the grain market, but ethanol is the driver. It’s the big machine behind these current prices.
• Numbers from previous years show, he says, that grain use can go down during a recession. But in the current recession — which is the worst since the Great Depression — use has continued to climb, and biofuels have been a big factor.
Has supported grain use
“The underpinning support of demand from the biofuel market has supported grain use even in these global economic conditions that we’re hopefully emerging from at this time. In my mind, that is very positive for grain demand and grain use as we move out of this recession and into more robust economic conditions,” says Welch.
Grain consumption continues to grow for those grains that are used for feed and fuel, he says. “It it’s human food, not so much,” he says. “Rice, over the last 10 years, is actually down by 1 percent on a per-capita basis. Wheat is up 2 percent, and of course there’s a small feed component there. The real growth has been in soybeans and corn. Soybeans are up 24 percent over the last 10 years and corn is up 20 percent.”
In Kansas — “the wheat state” — for the first since USDA has been keeping records, planted corn and soybean acreage is higher than wheat acreage.
“The Corn Belt is shifting west and south. This is an indication that farmers are adapting to new hybrids and new technology, and they’re able to grow corn and soybeans in places where we didn’t give them much serious thought before. It’s now an economically viable option.”
The worldwide situation is similar, he says, with a long-term trend of less wheat and more corn and soybeans. The trend can be tracked all the way back to 1980, says Welch.
Turning to the forecast of worldwide corn supplies, measured as days of use on hand, he says the 2010-11 marketing year is about 60 days. The 20-year average would be about 90 days. Sixty days, he says, could be the “new normal.”
“The U.S. situation has tightened up considerably since earlier estimates from this summer. For the last two crop years, we have seen record production, but we have increased our usage in excess of what we’ve been able to produce.”