Posted by: usset001 | April 30, 2009

Too much corn and a “burdensome” carryover?

Are corn stocks burdensome?

Are corn stocks burdensome?

I am both amused and irritated when I read an assessment of current grain market that characterizes the corn stocks situation as “burdensome.” On a related note, I’ve had several conversations in recent weeks with people who proclaim, “I can’t believe how much corn remains in the country.” It’s time for me to weigh in on a burdensome carryover and the high level of stocks in the country.

In the April WASDE report, USDA pegged stocks of corn at 1.7 billion bushels at the end of the 2008 crop year (August 31, 2009). That sounds like a lot of corn – it won’t fit in my garage – but stocks are better measured relative to demand. The accompanying chart shows ending corn stocks measured in terms of “weeks of usage” over the past 25 years. Ending stocks of 1.7 billion bushels is equivalent to 7.3 weeks of usage, based on the average weekly corn usage in the 2008/2009 crop year. This figure modestly higher than the previous 2 years, but still below the 10-year average of 7.8 weeks of usage. If you want “burdensome” try the mid-1980s, when ending stocks of corn equaled 28-34 weeks of use.

Let’s try a little perspective. The last time we had a carryout close to 1.7 billion bushels was in 1999. At that time, 1.7 billion bushels was equal to nearly 10 weeks of usage. In 1999, feed demand was higher than today, but ethanol demand for corn was roughly 5% of total demand, a number that is closer to 30% in the current crop year. 1978 was another year that ended with nearly 1.7 billion bushels of corn in stock – equal to 12 weeks of usage.

Seven weeks worth of corn in stock is burdensome only from the perspective of a “just-in-time” inventory management system. If the industrial supply chain were jolted out of sync by an unforeseen event, I could easily delay the purchase of a new washing machine or car. I wish I could say I feel that comfortable with our food supply chain.

Our demand base for corn is much higher today. Between feed, ethanol and export demand, this country ships or processes over 230 million bushels each week. That figure is 50% higher than 20 years ago. Production has grown to meet that demand and higher production means higher stocks, and it explains why there is “too much corn” in the country. We need greater stocks to provide an uninteruppted supply throughout the marketing year.

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