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Where will large U.S. grain crops find a market?

When the USDA projected a whopping big corn and soybean crop in August, most farmers and those in the grain trade scoffed. Very few really believed that yields were going to be that good. As the combines have started to roll, the expectations have been that yield monitors would prove the government wrong. So far, that has not happened.

 

Soybean yields are coming in higher than most farmers, agronomists and traders had expected. Early corn yields have been inconsistent, but have not shown a sustained downturn.

While it is still too early to make any definitive conclusions, it is looking like the USDA may be closer to the mark than the rest of us. So this begs the question, what the heck are you going to do with all this grain?

Both U.S. and world grain production has outpaced demand for the past four years, and the forecast is that this will continue for the foreseeable future. While this is good for the world’s consumers as food prices worldwide have fallen, it is not good for producers. It is estimated that U.S. net farm income this year will total $63.4 billion – about half of the earnings in 2013.

For many corn and soybean farms in the Midwest, this will be the third or fourth year that there will be no profit from farming. The Rural Mainstreet Index, compiled by Nebraska’s Creighton University, fell to its lowest level of the year last month, as farmland prices declined and agriculture equipment sales were dismal.

The surplus issue is not confined to the grain sector. Dairy producers have continued to increase production at a faster pace than consumption, or even processing capacity.

National milk production is increasing faster than the processing capacity. Per capita consumption of fluid milk has been steadily falling for some time because of competition from other beverages and because the share of the nation's total population who are children continues to decline.

Overall, U.S. milk consumption is rising between 1 and 2 percent annually on average, but production is going up around 3 percent.

Is the intensive, high tech, big production, commodity crop model that U.S. agriculture has been built on since the end of World War II, no longer viable? A recent summit at Purdue University examined how farmers can participate in a more local or regional food system.

Technology is proving that an Internet-based food distribution model outside of the traditional grocery store is possible. Such developments would be extremely disruptive to the current system. Yet, given the bleak profit picture for farmers, these alternatives might look attractive.

The future is also likely to produce some serious competition for U.S. farmers. Canada, a major producer of wheat and canola, may become a major corn producer. Monsanto is developing a corn hybrid with a very short maturity range that can grow in the shorter season of our neighbors to the north. Monsanto estimates that Western Canadian corn plantings could multiply 20 times to 10 million acres by 2025 – adding some 1.1 billion bushels, or nearly 3 percent to current global production.

Russia could also get into corn production, with increased acres in the Ukraine and other regions.

According to Reuters, “World ending stocks of total grains – the leftover supplies before a new harvest – have climbed for four straight years and are poised to reach a record 638 million tons in 2016-17, according to USDA data.”

This is more than enough to survive a drought or other regional calamity.

On the bright side, China, the world’s largest economy, says they want to start putting corn-based ethanol in their gasoline. China, the world’s largest car market, consumes 54 billion gallons of gas per year. Blending that with 10 percent ethanol would require about 50 million metric tons of corn. Bower Trading estimates this could increase corn demand by 2.2 billion bushels.

The focus of research and technology has been on production, getting more bushels out of every acre at less cost and fewer inputs. As much effort now needs to go into finding new uses and new products that will help us use more of what we are so good at producing.

The calamity fear-mongers and overpopulation fanatics are always claiming the sky is falling and we are all going to starve to death.

 

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Gary Truitt may write to him in care of this publication.

10/5/2017