Anyone hoping for relief from corn prices received no encouragement from recent developments.

The 2010-11 market year average farm price for corn was raised 10¢ on both ends of the range ($4.90-$5.70/bu.) in the monthly World Agricultural Supply and Demand Estimates released Jan. 12.

“U.S. feed grain supplies for 2010-11 are projected down, reflecting lower corn production,” according to the report. “U.S. corn production is estimated 93 million bu. lower, as a 1.5 bu./acre reduction in the national average yield outweighs a 183,000-acre increase in harvested area. A 5-million-bu. increase in projected U.S. corn imports slightly offsets the reduction in output. Corn feed and residual use is projected 100 million bu. lower, based on September-November disappearance as indicated by the Dec. 1 stocks. Corn used for ethanol is raised 100 million bu. offsetting the reduction in expected feed and residual use.”

And, the Environmental Protection Agency (EPA) last week extended the reach of E15 by approving its use in cars manufactured since 2001, which cuts a wider swath than the original approval last October of 2007 and newer vehicles.

“While occasional retracements of price rallies are likely to occur, there will be continued volatility in the grain market and generally higher prices,” says Darrell Mark, agricultural economist at the University of Nebraska-Lincoln. “Current futures prices, adjusted for Nebraska basis, suggest that cash corn prices will average very near $6/bu. through 2011, compared to just under $4/bu. realized in 2010.”

Providing perspective for readers of In the Cattle Markets, Mark explains, “Cattle feeders don't have very appealing alternatives for buying corn at this point. While many bought cash corn at harvest, those supplies will eventually run out later this spring. Ironically, much of this inventoried corn might run out about the time feeder cattle available for placement grow even tighter next summer. So, one alternative for some cattle feeders, particularly small or diversified operations, might be to significantly reduce the number of cattle they feed if they can't buy corn cheaper in the summer months. Otherwise, buying corn on breaks in the market might be the best they can do for the next several months.”

Analysts with USDA’s Economic Research Service (ERS) point out in this month’s Livestock, Dairy and Poultry Outlook, “While irrigated wheat pasture in the Southern Plains is providing some grazing, dryland wheat pasture is off to a slow start. This was evident in the November Cattle on Feed report in which animals in the under-500 lbs. category – a number of which would have gone to wheat pasture had it been available – showed the greatest year-over-year increase.”

So it’s likely more lightweight feeders will head directly to the feedlot, despite high grain prices.

“Lightweight feeder cattle have been popular in auction sales for the last several weeks,” say the ERS analysts. “Anecdotal accounts from private sources suggest that at least some of these cattle were purchased for overwintering on hay supplies that are relatively abundant in some areas. The intent may be to pasture these stockers next spring and summer for sale as heavyweight feeder cattle at the end of the 2011 grazing season.”

This strategy would be aimed at capturing the expected high prices during the anticipated shortage of heavy feeder cattle later in 2011, while minimizing the impact of expected high corn prices on finishing costs. “Such a strategy would shift feeder cattle from the first half of 2011 into the last half and beyond when heavy feeder cattle are expected to be in very short supply, although it would exacerbate the feeder cattle situation during the first half of 2011.”

Looking ahead, Mark explains, “The 2011 crop will be sensitive to acreage and yield risks because it doesn't have much cushion from a large carry-in supply. Opinions on whether the acreage battle for 2011 occurred last fall with fertilizer and seed sales or is still yet to come are quite mixed.”

Mark favors the idea that the corn market will try to buy more acres than the approximately 90 million acres currently estimated and that it will have a hard time doing so with high soybean, wheat, cotton, and rice prices. “Depending upon actual planted acreage, the 2011 corn crop could be ultra-sensitive to yield risks and weather events in May, June, and July this year as well. So, corn buyers have to be prepared for the possibility of additional corn price spikes, even if the 2011-12 corn production turns out to be adequate.”

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