FEED YEARBOOK May 03, 1999 April 1999, ERS-FDS-0499 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- FEED YEARBOOK is published annually by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. This release contains only the text of the FEED YEARBOOK -- tables and graphics are not included. Printed copies of this Yearbook will be available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock # ERS-FDS-0499, $21. ERS-NASS accepts MasterCard and Visa. ---------------------------------------------------------------------------- Contents Summary Feed Grain Supply and Use Abundant Feed Grain Supplies and Low Prices Spur Larger Use in 1998/99 Box: Agricultural Census Brings Revisions in Production and Stocks for 1992-97 Large Crop Boosts Corn Supply in 1998/99; Domestic Use Record High and Exports Rise Box: Government Payments Also Affected Farm Returns in Earlier Years Box: Marketing Loan/LDP Provisions Widely Used in 1998/99 Special Report: Update on Bt Corn and Other New Technology Sorghum Production and Use Decline for Second Consecutive Year Barley Production and Use Decline in 1998/99 Oats Supplies Up Slightly in 1998/99 Hay Situation and Outlook Hay Stocks Increase, Prices Decline Feed and Residual Use Feed Demand To Remain Strong Food, Seed, and Industrial Use of Corn Food, Seed, and Industrial Use of Corn To Increase in 1998/99 World Coarse Grain Outlook Global Coarse Grain Production and Use Change Little, U.S. Corn Share Increasing U.S. Corn Exports Rebound in 1998/99, But Sorghum Exports Down Box: New Procedures, Revised Trade Numbers for Grain and Products Special Article Combining Forward Pricing and Crop Insurance To Reduce Risk in Corn Production ERS Feed Grain Information: How To Get It List of Tables and Figures Coordinators Allen E. Baker (202) 694-5290 Peter A. Riley (202) 694-55308 Principal Contributors Edward W. Allen (202) 694-5288 (International) Allen E. Baker (202) 694-5290 Jenny Gonzales (202) 694-5296 (Statistics) Peter A. Riley (202) 694-5308 Special Article Richard Heifner (202) 694-5297 Keith Coble (601) 325-6670 Editor Diane Decker Layout, Text Design, And Graphics Wynnice Pointer-Napper Approved by the World Agricultural Outlook Board April 26, 1999. The Feed Outlook and Feed Yearbook may be accessed electronically via the ERS web site at http://www.econ.ag.gov. Summary U.S. feed grain production rose 4 percent in 1998/99 to 271 million metric tons, the highest since 1994/95. Total feed grain supply is forecast at 312 million tons, up about 8 percent and also the highest since 1994/95, reflecting a sharp increase in carryin stocks as well as the larger crop. Carryin stocks of feed grains are up 41 percent from 1997/98 to 38 million tons. Feed grain use is projected up 4 percent, led by higher exports. Corn's dominance of the feed grain sector continues to increase, with corn's share of total use expected to exceed 90 percent, up from 89 percent in 1997/98. Corn accounted for 91 percent of total production in 1998, reflecting gains in corn relative to the other feed grains. Acreage planted to the other feed grains is trending down, and yield growth has been subdued compared with corn. Prospective Plantings for 1999 indicates that plantings of sorghum and barley will be the lowest on record, and oats will remain close to the alltime low. U.S. corn production in 1998 was the second highest ever. Ending stocks are projected to increase for the third straight year as gains in supply outstrip increased corn use in 1998/99. Domestic disappearance is expected to set another record because of large supplies, low prices, and a buoyant economy, while exports increase as competitor shipments decline. Corn prices are projected to be the lowest since 1987/88. Low market prices triggered large use of the marketing loan program, especially the loan deficiency payment (LDP) option in 1998/99. Use of loan deficiency payments has been widespread in the first half of the year, indicating prices in many locations were below the local loan rate. As of mid-April, total LDPs made on the 1998 corn crop had almost reached $950 million, and more than $150 million were made for sorghum, barley, and oats combined. Acreage of corn derived through biotechnology increased sharply in 1998 and is expected to continue expanding in 1999. The leading type of new corn is Bt corn, which provides protection from the European corn borer, a major insect pest. Another category of biotech or genetically modified corn gaining popularity features herbicide resistance. U.S. exports of corn to the EU have been disrupted because of the slow pace of EU approvals of genetically modified corn. The EU has been importing corn from other suppliers that grow only non-biotech corn or biotech varieties that it has approved. Virtually all biotech corn currently grown features input traits. Biotech corn with value-enhanced output traits to enhance various end uses is expected to reach the market in the next few years. Plantings of specialty corn from conventional breeding, such as high-oil corn and white corn, are also increasing, but collective acreage remains under 5 percent of all corn. Sorghum use is down 16 percent in 1998/99 because of a lower crop. Despite lower prices, all sorghum uses are expected to drop. The largest decline will occur in feed and residual use, which is projected to fall 25 percent to 275 million bushels. If realized, this would be the lowest since the late 1950's. Sorghum exports are forecast to drop 13 percent to 185 million bushels, the lowest in more than a decade. Barley production in 1998 was down 2 percent from 1997. Although yields were higher, acreage declined. Harvested acres, at 5.9 million, were the lowest since 1902. Feed and residual use in 1998/99 has strengthened relative to 1997/98, but exports are expected to decline sharply. Oats supplies in the 1998/99 marketing year are greater than the previous year because of larger carryin stocks and higher expected imports. Production in 1998 was 167 million bushels, the same as in 1997. Although planted acreage fell 4 percent to 4.9 million acres, harvested acres were unchanged from 1997. The 1998 crop was the third smallest since records were first kept in 1866. The record low was recorded in 1995 at 153 million bushels. Hay stocks on farms on December 1, 1998, totaled 1.5 tons per roughage consuming animal unit (RCAU), compared with 1.4 tons in the prior 2 years. Prices for hay in 1998 had been weakening relative to a year earlier, even with the drought in the southern Plains, because many cattlemen reduced their herds rather than buy hay. The index of grain consuming animal units (GCAU's) for 1998/99 is expected to be nearly the same as 1997/98's 88 million. The grain used per GCAU in 1998/99 is expected to be 1.86 tons, down slightly from 1997/98's 1.87 tons. Relatively low prices for feed grains would be expected to encourage livestock production. However, large inventories of meat and weak prices have forced cutbacks or slowdowns in meat production. Food, seed and industrial (FSI) use of corn in 1998/99 is expected to total 1,860 million bushels, up from 1,782 million in 1997/98. Corn use is expected to be up for high fructose corn syrup (HFCS), ethanol, cereals, and other products, but down for glucose, dextrose, starch, beverage alcohol, and manufacturing alcohol. Foreign coarse grain production in 1998/99 is forecast to decline 2 percent, a drop of 14 million tons. Meanwhile, U.S. coarse grain production is estimated up 11 million tons and the world total will show little change. Foreign coarse grain consumption is forecast to decline slightly. World coarse grain stocks are expected to increase slightly in 1998/99 for the third straight year. World corn trade is expected to remain relatively flat in 1998/99, but U.S. corn exports are forecast to increase 20 percent because of reduced competition. The sharpest decline is expected in Argentina, the second largest corn exporter, because of a 25-percent decline in production. A special article is included that examines strategies to deal with low returns from crop sales when yield and/or price falls substantially below expectations. The article focuses on crop insurance and forward pricing, which are widely used methods for reducing within-year risks in crop production. Feed Grain Supply and Use Abundant Feed Grain Supplies and Low Prices Spur Larger Use in 1998/99 Feed grain supply is up 8 percent from 1997/98. Total use is expected to rise 4 percent and will be the second highest on record. U.S. feed grain production in 1998 is estimated at 271.2 million metric tons, up 4 percent from the year before and second only to 1994's 283.2 million. Corn accounts for all of the year-to-year increase, as sorghum and barley production declined and oats were virtually unchanged. Total feed grain supply for 1998/99 is forecast at 312 million tons, up about 8 percent and also the highest since 1994/95, reflecting a large increase in carryin stocks as well as the larger crop. Carryin stocks of feed grains are up 41 percent from 1997/98 to 38 million tons. Total feed grain disappearance will be very large because of rising exports and continued robust domestic demand. Total use is projected at 261 million tons in 1998/99, up 4 percent from the previous year, and second only to 268.5 million in 1994/95. Feed grain exports are forecast to rise 13 percent in 1998/99. While corn exports will be up, exports of the other feed grains will decline. Domestic use is forecast to rise almost 2 percent from a year earlier to 210 million tons, the second consecutive record. Corn's dominance of the feed grain sector continues to increase, with corn's share of total use expected to exceed 90 percent, up from 89 percent in 1997/98. Corn accounted for 91 percent of total production in 1998, reflecting gains in corn production relative to the other feed grains. Acreage of the other feed grains is trending down, and yield growth has been more subdued compared with corn. Prospective Plantings for 1999 indicates that plantings of sorghum and barley will be the lowest on record, and oats will remain close to the alltime low. Producers are getting better returns from other crops and, in some areas, they have enrolled land in the Conservation Reserve Program, which puts the acreage into conserving uses for 10 years. BEGIN BOX Agricultural Census Brings Revisions in Production and Stocks for 1992-97 Some USDA feed grain estimates were revised in January 1999 to incorporate data revisions made by the National Agricultural Statistics Service (NASS), stemming from the 1997 Census of Agriculture. Readers who do not follow monthly USDA reports are advised to check supply and distribution tables going back to 1992/93 in the appendix of this report, as they may be different from those published in last year's Yearbook. In December 1998, NASS issued revised estimates of grain production and stocks for 1992-1997. There were no historical stock changes for corn, and only a few minor stock adjustments for the other feed grains. The largest changes were in corn production, lowered 159 million bushels for 1997, 61 million for 1996, and 52 million for 1994, largely reflecting lower planted and harvested acres in several States. Corn production for 1995 went up 26 million bushels due to a slight rise in acres. Sorghum production was reduced 20 million bushels for 1997, and by smaller amounts for 1994-1996. Barley output declined 15 million bushels for 1997, and smaller amounts for 1995 and 1996. Oats followed a similar pattern, cut 9 million for 1997 and less for 1993-1996. These production revisions for corn led to corresponding adjustments in feed and residual use, with no revisions in other categories of use stemming from the NASS changes. Thus, feed and residual use is significantly lower than previously estimated for most recent years. The largest change, a drop of 159 million bushels in 1997/98 corn, represents a 3-percent decline from the previous estimate. (There were also some small revisions in other categories of use, such as trade and industrial use, within the last year because of new information or revisions from other data sources.) The Census of Agriculture is conducted every 5 years, and contains a variety of statistics on a national, State, and county basis. For example, the number of U.S. farms producing feed grains declined between 1992 and 1997. The largest absolute decrease occurred in corn, where the number of farms fell from 504,000 to 431,000, a drop of 14.5 percent. Although the quantities were smaller, the declines for the other feed grains were proportionately larger. The number of farms harvesting sorghum fell 30 percent between 1992 and 1997, barley 28 percent, and oats 36 percent. For more information, see the USDA/NASS web site. Http://www.nass.usda.gov/census END BOX Large Crop Boosts Corn Supply in 1998/99; Domestic Use Record High and Exports Rise U.S. corn production in 1998 was the second highest ever. Stocks of corn are projected to increase as gains in supply outstrip increased use in 1998/99. Domestic disappearance is expected to set another record because of large supplies, low prices, and a buoyant economy, while exports increase as competitor shipments decline. Corn prices are projected to decline to the lowest level since 1987/88. Corn Crop Reaches 9.76 Billion Bushels U.S. corn production in 1998 was 9,761 million bushels, up 6 percent from 1997 and the second highest after the 10.1-billion- bushel crop of 1994. Planted area totaled 80.2 million acres, up 1 percent from the year before, and the largest since 1985, despite strong competition from soybeans, which had record high plantings. Despite the increase in plantings, corn harvested area dropped marginally to 72.6 million acres because of greater than normal abandonment due to drought damage in some areas. The average yield was 134.4 bushels per acre, up 7.7 bushels from 1997, and the second highest after 1994 when yields reached 138.6 bushels. Planting proceeded rapidly in 1998 and was 97 percent complete by the end of May, compared with the previous 5-year average of 88 percent. There was much apprehension about the potential impact of the "El Nino" weather pattern and the possibility that severe heat and drought could hit the Midwest, similar to some earlier years such as 1983. Growing conditions in the Corn Belt turned out to be generally favorable, especially in the western and northern areas. However, corn crops in Texas and several other States across the South and the Southeast were decimated by heat and drought, accounting for greater than average abandonment. Some of the corn in Texas and neighboring States also had high amounts of aflatoxin. Still, the national impact was limited because this region produces a relatively small share of the total crop. Nationally, crop progress was ahead of average, and dry, frost- free conditions in the fall facilitated an early harvest. As of November 1, 1998, 83 percent of the crop had been harvested, compared with the average of 68 percent. Kansas, Minnesota, Nebraska, North Dakota, and South Dakota had record crops. Corn production in Texas was the lowest since 1991. Objective yield data indicated record stalk and ear counts for the seven States where these data are collected (Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio, and Wisconsin). Stocks To Rise as Supply Increase Outstrips Gains in Use Carryin stocks of corn for 1998/99 were up 48 percent from a year earlier to 1,308 million bushels. This increase, along with the larger crop and larger imports, will raise the total supply of corn about 1 billion bushels from the year before to nearly 11.1 billion bushels. This will be the highest since 12 billion bushels in 1987/88. The increase is expected to outpace gains in use, and stocks will grow for the third straight year. Ending stocks of corn in 1998/99 are projected to increase 38 percent to 1,799 million bushels, the highest since 2,113 million in 1992/93. The ratio of stocks to use is projected at 18.3 percent in 1998/99, compared with 14.9 percent the previous year and the low of 5 percent in 1995/96, when prices soared to record highs. Total Disappearance Expected To Be Second Highest Ever Total disappearance of corn is projected at 9,285 million bushels in 1998/99, up about 6 percent from 1997/98, and close to the 1994/95 record of 9,352 million. Exports are expected to account for the largest gains, up almost 300 million bushels from the weak performance in 1997/98. Domestic use of corn is expected to increase about 200 million bushels to a record high, as the abundant supply and low prices fuel continued gains. Domestic use is expected to reach nearly 7.5 billion bushels, the second consecutive record, as both feed and residual use and food, seed, and industrial (FSI) use expand. U.S. corn exports are forecast at 1.8 billion bushels, up 20 percent from the depressed performance of 1997/98 because of declining competitor shipments. Despite low prices, economic and financial problems in several regions have led to weak global import demand. FSI use is forecast at a record 1,860 million bushels in 1998/99, up 4 percent, led by gains in ethanol and high fructose corn sweetener. Strong U.S. economic growth and very attractive corn prices for end users underlie the continued expansion in industrial use. Feed and residual use of corn is forecast to rise 2 percent to 5,625 million bushels, also a record, as large animal inventories, particularly for hogs and broilers, and low prices keep feed demand high. A sharp decrease in the availability of grain sorghum and an expected decline in the feeding of wheat this summer support more use of corn. Although huge meat supplies have kept red meat prices low, feed costs have been down sharply in 1998/99 because of the decline in the price of corn and other grains, along with a dramatic fall in the price of protein meal. Corn Prices Projected To be the Lowest Since 1987/88 The season average farm price of corn in 1998/99 is forecast at $1.90-2.10 per bushel. The mid-point of this range would be the lowest since $1.94 in 1987/88. The lowest corn price so far in the 1990's was $2.07 in 1992/93, a year that featured a record crop, record domestic use, sluggish exports, and very large stocks--somewhat similar to the 1998/99 situation. Most farmers will also receive government payments in 1998/99. For the 1996-2002 crops, producers who participate in the Production Flexibility Contract (PFC) program receive PFC payments, which are not linked to market prices. The 1996 Farm Act appropriated a fixed amount of money to be paid among participating producers each crop year. The determination of eligible bushels for each producer remained the same as in the earlier program, that is, contract acres times program yield times 0.85. Program yield for 1998/99 corn is 102.6 bushels per acre. In 1996, the only sign-up for the 1996-2002 crops, 98.3 percent of the eligible base acres of 82.1 million acres was enrolled. Payment bushels on the 1998/99 crop total about 7.1 billion, or about 73 percent of total corn production. The PFC payment rate for the 1998/99 crop was about $0.38 per bushel. BEGIN BOX Government Payments Also Affected Farm Returns in Earlier Years In each of the 2 low price years cited for comparison above, government payments under previous legislation also affected farm returns. In 1987/88 and 1992/93, for instance, deficiency payments were made to program participants at the rate of $1.09 and $0.73 per bushel on their eligible production. In the 1992/93 case, eligible production was calculated by taking the producer's corn base acreage times the producer's program yield times 0.85. The 0.85 factor was applied because producers had flexibility to plant other crops on up to 15 percent of their corn base and retain eligibility to maximize their deficiency payments. Program yields in 1992/93 averaged 105.4 bushels per acre, compared with the national average of 131.5 bushels. Participation in the 1992/93 program was 75.7 percent of the eligible acreage of 82.2 million acres. Payment bushels on the 1992/93 crop totaled about 5.1 billion bushels, or about 54 percent of total corn production. Thus, average per bushel returns for corn in 1992/93, including government payments, was about $2.45 per bushel. END BOX Additional payments have also been made to PFC contract holders for their 1998/99 crop. Contract holders are eligible to receive loan deficiency payments (LDP) and realize marketing loan gains (MLG) when county prices fall below the county loan rates, and all production on the farm is eligible for these payments. For the 1998/99 crop, producers have already received over $950 million in LDPs and MLGs, and these payments are likely to exceed $1 billion for the crop year. In addition, the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act of 1999 appropriated $2,857 million to be paid to PFC contract holders, of which corn contract holders received about $1,340 million. This represents additional payments of nearly $0.19 per bushel on eligible PFC bushels. Thus, average per bushel returns for corn in 1998/99, including government payments, is expected to total about $2.50 per bushel. Weak prices over the last several months have reflected fundamental developments in the corn market and low prices for virtually all commodities. Corn prices began a steep descent during the later stages of the 1997/98 marketing year in response to favorable crop production prospects. Average farm prices were well below $2.00 per bushel at the beginning of the 1998/99 marketing year. The U.S. monthly average price was $1.83 in September and then rose modestly, roughly in line with normal seasonal patterns. In the early months of 1999, prices have remained flat around $2.05, contrary to the typical seasonal rise over the winter months. End users have benefited from the low prices. The benchmark Central Illinois cash price of corn declined to under $2.00 per bushel in the late summer of 1998. During the main harvest period (September-November), prices were 70 cents per bushel lower than in 1997. The low point of $1.78 reached in September 1998 was the lowest Central Illinois price for any month since December 1987. Corn Plantings Likely To Decrease in 1999 In early March, corn growers indicated that they intend to plant 78.2 million acres of corn in 1999, down 2 percent from both last year and 1997, according to Prospective Plantings. If these intentions materialize, this would be the lowest acreage since 1995, when a 7.5-percent Acreage Reduction Program was in effect under previous farm law. Actual plantings could change because of market conditions and weather effects. Relatively little change in plantings from a year earlier is expected in the heart of the Corn Belt, but some reductions are likely in other areas, including the Southwest (particularly Texas) and the Southeast. Growers intend to increase soybean area to another record, with the incentive of an attractive loan rate relative to corn and wheat. Lower expected corn prices account for some of this prospective decline in area. However, farm prices of soybeans, the principal crop competing with corn, are also expected to fall. Both current and futures market prices have reduced the ratio of soybean to corn prices from a year earlier, but the soybean loan rate of $5.26 per bushel essentially offsets this decline. As of April 23, 1999, the Central Illinois spot price for soybeans was $4.67 per bushel, down from $6.36 a year earlier, while the spot corn price was $2.07, down from $2.43. The closing price for the November 1999 soybean contract on the Chicago Board of Trade was $5.09 per bushel on April 23, 1999, down from $6.24 for the comparable contract a year earlier. The December 1999 corn contract closed at $2.40 on the same date, compared with $2.68 the year before. BEGIN BOX Marketing Loan/LDP Provisions Widely Used in 1998/99 Low market prices have triggered large use of the marketing loan and loan deficiency payment (LDP) options in 1998/99. Use of loan deficiency payments has been widespread in the first half of the year, indicating prices in many locations were below the local loan rate. Farmers can gain a LDP when the posted county price falls below the county loan rate, which is adjusted for transportation differentials and other factors. As of late- April, total LDPs had reached $950 million on the 1998 corn crop and more than $150 million for barley, sorghum, and oats combined. The amounts include silage, hay, or other non-grain use. The quantities of LDPs by late April had reached nearly 5.3 billion bushels for corn, 257 million for barley, 103 million for oats, and 187 million for sorghum. There are no data available to track whether producers sold this grain or put it in storage for later sale. Although the LDP option has been in place for a number of years, it remained relatively obscure until recently because market prices were well above loan rates. Marketing loan provisions were first extended to feed grains and wheat starting in 1993 under GATT (General Agreement on Tariffs and Trade) trigger provisions of 1990 farm legislation. An underlying objective of the loan program was to provide producer support if prices sagged, while the marketing loan provision allowed repaying the loan at local prices rather than forfeiting grain to the government. This avoids a large buildup of government (Commodity Credit Corporation) stocks. The marketing assistance loan program was continued in the 1996 Farm Act, but there were several modifications. To receive a marketing assistance loan for a feed grain, a producer must have a production flexibility contract for one of the contract commodities (wheat, corn, grain sorghum, barley, oats, cotton, and rice). The marketing assistance loan rate for corn is capped at the 1995 level of $1.89 per bushel. Other features are similar to the previous commodity loan programs. The Secretary may use discretionary authority to lower the corn marketing assistance loan rate if the projected stocks- to-use ratio exceeds predetermined levels. Marketing assistance loans are nonrecourse loans and may be redeemed at the lower of (a) the applicable county loan rate plus accrued interest and other charges or (b) the marketing loan repayment rate (i.e., posted county price, PCP). If the posted county price is lower than the county loan rate, a marketing loan gain is realized. Producers are eligible to receive a loan deficiency payment if they agree not to place the commodity under loan. The loan deficiency payment rate is equal to the amount by which the county loan rate exceeds the posted county price in the county in which the grain is stored. There is a payment limitation of $75,000 per person on amounts earned from LDPs and marketing loan gains. For additional information on marketing assistance loan programs, visit the Farm Service Agency Internet site at http://www.fsa.usda.gov/pas/publications/facts/pubfacts.htm END BOX Special Report Update on Bt Corn and Other New Technology Acreage Expanding Rapidly Acreage of corn derived through biotechnology increased sharply in 1998 and is expected to continue expanding in 1999. The leading type of new corn is Bt corn, which incorporates a protein from Bacillus thuringiensis, a naturally occurring soil bacteria. Bt corn was first available commercially in very small quantities in 1996. Industry sources estimate plantings reached 16 million acres in 1998, up from around 5 million in 1997. In 1999, Bt corn plantings could grow to 25 million acres or more. (USDA does not collect separate data on individual types of corn, but includes them in total estimates of area, production, and use. Thus, none of the numbers in this box are "official" USDA estimates, but they are believed to be reasonably accurate.) The popularity of Bt corn stems from its effectiveness in preventing damage from the European corn borer, a major insect pest. The effects are most noticeable when Bt corn is compared side by side with non-Bt corn in areas of heavy infestations. More systematic evaluations are becoming available from State extension and university trials. However, corn borer populations are not consistent from year to year and are difficult to predict. Thus, many producers choose Bt corn as a kind of insurance, just in case. Farmers pay a premium for the seed, but price discounts were widespread in 1998, apparently because of competition for market share among seed suppliers. The control available through Bt corn is generally considered superior to spraying insecticides, and it largely eliminates scouting needs. Another category of biotech or genetically modified corn features herbicide resistance. This means that a herbicide can be sprayed on a field to kill weeds without harming the corn plant itself. This usually reduces the number of herbicide applications needed and allows more flexibility in their timing. The herbicide resistance feature is currently more common in the soybean sector than corn, but it is expanding rapidly as corn with resistance to different herbicides becomes available. A significant amount of herbicide tolerant corn is also available with Bt protection in "stacked" varieties. Industry sources estimate that acreage planted to herbicide resistant corn was over 11 million acres in 1998, up from around 5 million in 1997. However, these totals include a portion of imidazolinone (IMI) resistant corn developed through conventional breeding and not through biotechnology, and a portion of corn with stacked traits. The total acreage planted to all biotech corn in 1998 was reportedly on the order of 18 million acres, over 20 percent of all corn, after subtracting IMI varieties and accounting for stacked products to avoid double counting. Virtually all biotech corn currently grown features input traits that offer improved growing characteristics to the farmer. Biotech corn with value- enhanced output traits to enhance various end uses is expected to reach the market in the next few years and will offer improvements in animal nutrition, food qualities, starch content, processing, and other traits. Corn that has improved output traits of interest to end users is currently available from conventional types of corn. Acreage of existing output trait corn, often called specialty corn, increased in 1998, although on a much smaller scale than the input trait corn. Some of the leading types are high oil corn, white corn, hard endosperm corn, waxy corn, and nutritionally dense corn. They are mostly geared for food and industrial uses, although high oil and nutritionally dense corn have improved feed characteristics for livestock and poultry. A large share of both high oil and white corn goes to export markets. The collective acreage of all these specialty varieties remains under 5 percent of total area planted to corn. (For background information, see the special article: "The Impact of New Technology on the Corn Sector: 1998 Update and Prospects for the Future," in the 1998 Feed Yearbook. Also, see the U.S. Grains Council web site for "Value Enhanced Corn Quality Reports," at http://www.grains.org/. Slow Approval Process Blocks U.S. Corn Exports to the EU, Some Marketing Changes in Store All Bt and herbicide resistant corn commercially grown in the United States has been cleared through a regulatory process involving USDA, the Environmental Protection Agency, and the Food and Drug Administration. Because the corn is essentially the same as any corn grown from conventional hybrids, no special marketing arrangements have generally been followed, unlike some of the value-enhanced corn that is segregated or identity preserved to capture user premiums. However, there have been problems exporting biotech corn to the European Union (EU) in the last 2 years, although exports to other destinations have not been affected. U.S. exports of corn to the EU were effectively cut off in 1997/98 because of the slow pace of EU approvals of genetically modified corn. The EU imported corn from other suppliers such as Argentina and Eastern Europe, which grew only approved biotech corn or non-GMO (containing no genetically modified organisms) varieties. By the time the EU had approved all the biotech products grown in the United States in 1997, it was late summer 1998, leaving only a small window for U.S. sales. U.S. exports to the EU in 1997/98 (September-August) amounted to only 135,000 tons, compared with 1.7 million the previous year. When the main 1998 U.S. harvest began, the window for sales closed quickly because there were some genetically modified corn varieties not yet approved by Europe and importers feared some could be co- mingled with approved corn. The United States exported 185,000 tons of corn to the EU early in the 1998/99 marketing year and no more sales are expected for the balance of the year. The European Union has not yet approved all the genetically modified corn varieties grown in the United States in 1998, and it does not allow imports of unapproved products. The EU has a very slow approval procedure at best and the system has effectively broken down in the last year, while more new biotech corn products are coming on stream in the United States in 1999. The EU also mandated a labeling requirement for genetically modified (GMO) products, although the guidelines are still somewhat vague. The topic of biotechnology in agriculture in Europe is politically charged and is undergoing extensive debate, suggesting no breakthroughs in trade will occur soon. U.S. corn exports to the EU averaged more than 2.1 million tons per year between 1990/91 and 1996/97, and accounted for close to 5 percent of all U.S. exports. Spain and Portugal are usually the leading EU markets. The EU is also the leading export market for U.S. corn gluten feed and meal, byproducts of corn wet milling, that are used for animal feed. Because of the ongoing trade friction, some major U.S. corn processors announced in the spring of 1999 that they would not purchase biotech corn that is not approved by the EU. Farmers are advised to feed this grain on farm, market it to local elevators for domestic use, or sell to livestock producers. This is in line with recommendations from the National Corn Growers Association and others in the grain industry to prevent this corn from reaching export channels. Assistance is available to identify domestic market opportunities. Seed bags for corn not yet approved by the EU carry a reminder to growers to feed the corn on farm or sell for domestic use only. Growers typically sign agreements to follow these guidelines. Precise estimates of the amount of corn acreage planted to varieties not approved by the EU are not possible, but industry sources suggest it could rise somewhat from around 3 percent of total acreage in 1998. --end special report-- Sorghum Production and Use Decline for Second Consecutive Year Sorghum supply drops 16 percent in 1998/99 because of a smaller crop. All uses of sorghum are expected to be down despite lower prices. Sorghum production in 1998 is estimated at 520 million bushels, down 18 percent from 1997, reflecting declines in both acreage and yields. Although planted acres dropped only 400,000 acres to 9.6 million, harvested acres were down sharply because of large abandonment in Texas due to extreme drought. Harvested acres totaled only 7.7 million, the lowest since 6.3 million in 1953. Acres cut for silage were also the lowest in several years. The average U.S. sorghum yield was slightly below trend at 67.3 bushels per acre, down 1.9 bushels from 1997 and equal to 1996. Very poor growing conditions accounted for a steep drop in yields in Texas, the second largest producing State, from 59 bushels per acre to 46 bushels. Conditions were more favorable in most other major growing areas. In Kansas, the single largest sorghum producer, yields were up marginally and matched the alltime high of 80 bushels per acre. Excluding Texas, the average U.S. yield per acre increased almost 2 bushels. Sorghum Acreage Expected To Continue To Slide in 1999 Since the mid-1980's, there has been a downward trend in sorghum acres but it has followed a choppy path. Sorghum plantings periodically spike when weather problems lead to problems in other crops. For example, in 1992 sorghum acreage rose more than 2 million acres, largely reflecting replanting of failed cotton land in Texas. Similarly, in 1996 plantings increased 3.7 million acres when sorghum was planted on failed wheat acres in Kansas and Texas and on failed cotton acres in Texas. According to the Prospective Plantings report, growers intend to plant a record low 8.8 million acres in 1999, down 9 percent from 1998. The largest drop is expected in Texas, while Kansas producers said they would plant slightly more sorghum. Although it is a small sorghum producing State, Louisiana is expected to post a sharp increase in area in 1999. While acreage has fluctuated considerably in Kansas and Texas in recent years, sorghum plantings have consistently been shrinking in Nebraska, the third largest producing State. This apparently reflects more shifting of dryland sorghum to soybeans and corn, and other crops offering better returns. While trending up, yield growth has been much more modest for sorghum than corn. The long-term (1960-98) linear trend for sorghum shows annual yield increases of about 0.6 bushel per year, compared with about 1.8 bushels for corn. Sorghum tends to be grown in drier areas because it is better able to tolerate drought and heat stress than corn, and a smaller share of sorghum acres is irrigated, also limiting the crop's yield growth. The growing gap between sorghum and corn yields has diminished sorghum's appeal. Since the 1996 Farm Act introduced more flexibility in planting decisions, both corn and soybeans have become attractive options in many areas in the western and northern tiers of the Corn Belt. New varieties of corn and soybeans are available that do well in what would have been considered marginal growing areas in the past because of low moisture or short growing seasons. Sorghum Disappearance Forecast To Fall 20 Percent All uses of sorghum are expected to decline in 1998/99 because of the reduced supply and abundant supplies of competing grains. Total use is forecast at 505 million bushels, down from 632 million in 1997/98. Ending stocks of sorghum are projected at 64 million bushels, up from 49 million in 1997/98 and the highest in 4 years. The largest decline will occur in feed and residual use, which is projected to fall 25 percent to 275 million bushels. If realized, this would be the lowest since the late 1950's. FSI use of sorghum is forecast to drop 10 million bushels to 45 million. Most of this use is for fuel alcohol (ethanol). Exports of sorghum are forecast at 185 million bushels in 1998/99, down from 212 the year before, and the lowest in more than a decade. Export prices of sorghum (FOB Gulf ports) relative to corn have stayed high, averaging 95 percent of the corn export price through the first half of the 1998/99 marketing year. Farm Prices Down The price of sorghum received by farmers is forecast at $1.65- 1.75 per bushel in 1998/99. Like corn and the other grains, this will be down sharply from the previous year when sorghum prices averaged $2.21 per bushel. The sorghum price is expected to average just 85 percent of the corn price, down from 91 percent in 1997/98, as the price effects of the large reduction in sorghum supply are more than offset by lower sorghum demand. This is also a bit weaker than the historical relationship of around 92-93 percent. Barley Production and Use Decline in 1998/99 Barley production in 1998 was down 2 percent from 1997. Feed and residual use of barley in 1998/99 has strengthened relative to 1997/98, but exports are expected to decline. Barley production in 1998 is estimated at 352 million bushels, down from 360 million in 1997 because of lower area. The national yield averaged 60.1 bushels per acre, up slightly from 1997's 58.1 bushels. Planted acres in 1998 were down 6 percent to 6.3 million, but harvested acres were down 5 only percent. North Dakota continued to rank as the top barley producing State, followed by Idaho, Montana, Washington, and Minnesota. These five States produced over three-fourths of the 1998 barley crop. The 1998 harvest in North Dakota was almost complete by September 6 and 3 weeks ahead of normal. North Dakota yields increased 10 bushels from 1997, to 55.0 bushels per acre. Yields in Montana dropped 5 bushels from 1997 due to inadequate moisture during the growing season, while those in Washington dropped 9 bushels to 65. Total Supply and Total Use Down in 1998/99 In addition to reduced production in 1998/99, imports are expected to be down 38 percent from the 40 million bushels imported in 1997/98. Even with an increase of 9 percent in beginning stocks, total supplies for 1998/99 are expected to be down 3 percent from the 510 million bushels in 1997/98. Most of the imports will be malting barley, and much is believed to be grown under contract. Feed barley imports are minimal, largely due to increased livestock production in Canada boosting local demand for barley. Ending stocks in 1998/99 are expected to be up 7 percent from the 119 million bushels in 1997/98. Based on quarterly stocks data thus far in the 1998/99 marketing year, barley feed and residual use may be up 18 percent to 170 million bushels from 144 million. In 1997/98, exports were strong early in the marketing year, mainly feed barley to Saudi Arabia, reducing the amount of feed barley available domestically. This marketing year, exports are expected to be down nearly 60 percent so more is available for domestic feeding. Also, there have been scattered reports that some brewers have rejected some malting barley because of traces of vomitoxin. If true, these loads would have to be used for feed rather than for malting. Food, seed and industrial uses have recently been lowered because the lower planting intentions indicate less seed is needed. U.S. barley malt exports increased 7 percent in calendar year 1998 to 140,883 tons, with Mexico accounting for most of the year-to-year gain. The total volume was the highest since 1995 and the third highest on record. The record high was 178,875 tons reached in 1993. Mexico has been the largest U.S. malt market for the last 3 years, followed by Japan. Although Mexico had previously been the leading destination in the early 1990's, shipments declined sharply in 1994 and 1995 when domestic malting capacity expanded. U.S. barley imports in 1998 were down more than 20 percent to 38,025 tons, the lowest since 1994. Barley Prices Decline Even with declines in production, barley prices received by farmers in 1998/99 have been weaker than a year ago. Plentiful supplies of feed grains, primarily corn, and weak export demand for all feed grains have led to a barley price forecast of $1.90- $2.00 per bushel, down from $2.38 in 1997/98. Through March 1999, feed barley prices received by farmers averaged $1.55, down from an average of $2.06 in June 1997-March 1998. Malting barley prices have also been weak, averaging $2.32 in June 1998-March 1999, versus $2.73 during the same period a year earlier. The spread between malting and feed barley is averaging $.10 higher in June 1998-March 1999 than last year, suggesting malting barley supplies are tighter than last year. Prospective Plantings On March 1, 1999, growers indicated they intend to seed 5.27 million acres for 1999, down 17 percent from the 6.34 million acres seeded a year ago. Barley growers in North Dakota and Minnesota are decreasing seedings by 500,000 and 190,000 acres, respectively. Of the 27 States that estimate barley acreage, growers in 17 intend to seed fewer acres. Six States are showing no change, and only four States intend to increase acres. Oats Supplies Up Slightly 1998/99 Oats supplies in 1998/99 are expected to be up 4 percent from 1997/98. Total use may be up 5 percent because of an 8-percent increase in oats used for feed and residual. Oats supplies in the 1998/99 marketing year are larger than last year because of larger carryin stocks and higher expected imports. Production in 1998 was 167 million bushels, the same as in 1997. Although planted acreage, at 4.9 million acres, was down 4 percent from 1997, harvested acreage was unchanged. The 1998 crop was the third smallest since records were first kept in 1866. The record low was recorded in 1995 at a final number (from the recent historical revisions) of 153.245 million bushels. Hot, dry weather during July and August 1998 promoted rapid crop development, but also dimmed yield and grain quality prospects in several Corn Belt and Great Plains States. Oats tend to be used as a cover crop to start forage crops and make excellent hay or silage. As a result planted acres tend to be much larger than harvested acreage, more so than other crops. Oats are not likely to challenge corn for more acreage because of their low yield per acre and low price. In 1998, average oats yields were 60.4 bushels per acre, while corn yields were 134.4 bushels per acre. Gross returns per acre of oats in 1998 will likely be between $66 and $72, in contrast to corn's gross returns of between $255 and $282. Variable cash expenses are much higher for corn than oats but even so, in 1997 the returns net of variable costs were estimated to be about $171 per acre, compared with $65 for oats. (See the ERS Cost and Returns Reading Room at http://www.econ.ag.gov/briefing/fbe/car/car.htm.) Oats Imports To Remain Strong Oats supplies in 1998/99 are expected to be boosted by an increase in imports, primarily from Canada, with lesser amounts from Finland and Sweden. Imports in 1998/99 are expected to total 105 million bushels, up from 98 million in 1997/98. All three countries tend to have cooler summers that are conducive to production of the heavy white oats favored by the food processing industry and many horse enthusiasts. As a result, imports are forecast to comprise about 30 percent of the U.S. oats supply in 1998/99. Total use of oats in 1998/99 may rebound to 272 million bushels, up 14 million from a year earlier, and near the use of 1995/96. Ending stocks may be about the same as the 74 million in 1997/98. Food use is expected to remain near the 1997/98 level. Feed and residual use is expected to be up 9 percent from the 161 million bushels used in 1997/98. Prices Down from 1997/98 Prices received by farmers for oats in 1998/99 are expected to average between $1.10 and $1.20, down from $1.60 in 1997/98. Prices are expected to be weaker because of the larger supply of oats and plentiful supplies of competing feed grains. Prospective Plantings On the March 1, farmers indicated they intended to harvest for grain 2.69 million acres in 1999, down 3 percent from 1998. These acres would be the second lowest recorded since 1866, surpassing only the 2.66 million acres harvested for grain in 1996. North Dakota farmers reported intentions to harvest for grain more oats than any other State, followed by Minnesota and Wisconsin. Hay Situation and Outlook Hay Stocks Increase, Prices Decline Despite lower production in 1998, hay stocks on farms December 1, 1998, totaled 111.8 tons, up nearly 9 percent from a year earlier. Hay prices are down substantially in 1998/99, following record highs a year earlier. Stocks of all hay on farms on December 1, 1998, were up nearly 9 percent from 1997's revised 103 million tons. Stock increases occurred in 33 of the 48 contiguous States. The mild winter conditions across the United States prolonged pasturing and reduced the need for hay feeding. Drought conditions in the southern States, from New Mexico, Texas, and Oklahoma to Georgia and Florida, caused stocks to drop from a year earlier. Louisiana, Texas, and Oklahoma had the largest stock decreases. Roughage consuming animal units (RCAU's) in 1998/99 are estimated to be down 1 percent from 1997/98. Hay stocks on farms December 1, 1998, were 1.5 tons per RCAU, compared with 1.4 tons in the prior 2 years. The plentiful stocks per RCAU help explain the weakness in hay prices relative to last year. Hay production in 1998 totaled 151 million tons, down 1 percent from the revised 1997 total. Acreage of all hay was down 2 percent from the 61 million acres harvested in 1997, but yields were up 1 percent at 2.52 tons per acre. South Dakota became the top hay producing State, up from third place in 1997, followed by California and Missouri. Texas, the leading producer in 1997, dropped to number seven as a prolonged drought sharply cut other hay production. Production of alfalfa and alfalfa hay mixtures in 1998 was up 4 percent from 1997's 79 million tons. Acreage was up 91,000 acres, and yields were up 4 percent from 1997's 3.33 tons per acre. In 1997, the National Agricultural Statistics Service began collecting data on the number of acres of new seedings to alfalfa and alfalfa mixtures. During 1998, the number of acres seeded was down 5 percent from the 4 million acres seeded in 1997. Wisconsin was the leading State with 600,000 acres seeded, down 8 percent from the year earlier. Minnesota was second with 250,000, down from 300,000 in 1997. With only 2 years of data on alfalfa seedings it is hard to tell if this means fewer alfalfa acres or that the fields came though the 1997/98 winter with low winterkill. Other hay production was down 6 percent from 1997's revised 74 million tons. In 1998, the area harvested of other hay was 36 million acres, down 3 percent from 1997. Average yields in 1998 were down 3 percent from the 1.97 tons per acre in 1997. Texas and Missouri tied as the leading producers in 1998, whereas Texas was first in 1997 and Missouri was second. Production of other hay in Texas was down 4 million tons from 1997 because of drought and represented 87 percent of the National decline in other hay production. Corn for silage in 1998 was down 3 percent from the revised 97 million tons produced in 1997 to 94.5 million. Acreage was down 2 percent and yields were down 1 percent. Sorghum for silage totaled 3.5 million tons, down 35 percent from 1997. Acreage was down 26 percent from the year earlier, and yields were down 13 percent from the 13.1 tons per acre in 1997. Total silage production per roughage consuming animal unit in 1998 was 1.3 tons, down from 1.4 tons in 1997. Even with the drought, prices for hay in 1998 had been weakening relative to a year earlier because many cattlemen reduced their herds rather than buy hay. All hay prices received by farmers during May 1998- March 1999 averaged $85 per ton, down from $100 in May 1997-March 1998. In the 1997/98 hay marketing year, prices received by farmers for all hay weighted by marketings was record high at $100 per ton, up from $95.80 in 1996/97. Alfalfa hay prices received by farmers in 1998/99 are expected to be down sharply from 1997/98. In the first 11 months of the marketing year, alfalfa hay prices averaged $88.80 per ton, down 17 percent from the $107.39 simple average for the same months in 1997/98. In the 1997/98 marketing year, the weighted average for alfalfa hay prices was $107 per ton, up from $101.80 in 1996/97. Hay other than alfalfa in 1997/98 had a weighted average price of $75.70 per ton, down from $76.50 in 1996/97. In the 1998/99 marketing year, prices received by farmers are likely to be down again. In the first 11 months, the simple average price was down 5 percent from the some months in 1997/98. Prospective Harvested Acreage Farmers in March indicated they planned to harvest 60.093 million acres of hay in 1999, up from 60.016 million in 1998. Texas, which traditionally has the largest hay acreage, is expected to have the largest again in 1999, followed by South Dakota and Missouri. Because of the drought in 1998, the area harvested for hay in Texas declined to 4.040 million acres, from 4.435 million in 1997. In 1999, prospective harvested area in Texas is up to 4.6 million acres, the largest increase of any State. Acreage declines in 24 States were more than offset by the increases in 14 States. In ten States no change in hay acreage is expected. Feed and Residual Use Feed Demand To Remain Strong Feed and residual use is expected to be down fractionaly from last year. Low feed prices have not encouraged meat production, because large inventories and weak livestock prices have forced cutbacks or slowdowns. Feed and residual use of the four feed grains plus wheat in 1998/99 is expected to be down fractionally from the 164 million metric tons used in September 1997-August 1998. Corn is expected to represent 88 percent of feed and residual use in 1998/99, up from 85 percent in 1997/98. The index of grain consuming animal units (GCAU's) for 1998/99 is expected to be nearly the same as 1997/98's 88 million. The grain used per GCAU in 1998/99 would be 1.86 tons, down slightly from 1997/98's 1.87 tons. Relatively low prices for feed grains would be expected to encourage livestock production. However, large inventories of meat and weak prices have forced cutbacks or slowdowns. In the index components, GCAU's for hogs, broilers, and layers are up from the previous year. Pork production in 1999 is expected down about 0.5 percent from the 19 billion pounds produced in 1998, which were up 10 percent from 1997. Hog farmers responding to the March 1 survey of hog producers indicated that they intended to decrease the number of sows farrowing in March-May 1999 by 7 percent relative to the prior year. Feed needs could be reduced in the fall of 1999, after the end of the 1998/99 feeding year. Broiler and egg production in 1999 are expected to increase from 1998 levels and maintain strong demand for feed grains. Broiler production in 1999 is expected to increase 6 percent from 1998 as producers respond to strong domestic demand. While hog producers are reducing production, cumulative placements (an indication of future flock size) in the broiler hatchery supply flocks have been increasing in 1999 and by next fall, cumulative placements will be 10 percent higher than in 1998. Egg producers are expected to produce 6.8 billion dozen eggs in 1999, up 2-3 percent from 1998. Egg prices were 7 percent lower in 1998 than in 1997, but lower grain prices have encouraged producers to continue increasing production. In contrast, turkey producers lost money on their birds in the first half of 1998 and have continued lower poult placements in early 1999. In 1999, turkey production may be about the same as the 5.3 billion pounds produced in 1998. The total number of cattle on feed on January 1, 1999, was 13.2 million head, down from 13.6 million the previous year. Compared with a year earlier, the calf crop was down 1 percent in the first half of 1998, but down 2 percent in the second half. Feeder cattle supplies outside feedlots were down less than 1 percent on January 1, but down 6 percent from a year earlier on April 1. Thus, placements of cattle on feed in 1999 are likely to be down from 1998 and feed needs would be less. The total number of dairy cows on January 1, 1999, was 9.1 million head, down 1 percent from 1998. Dairy cow numbers are expected to stay near early 1999 levels into 2000. But with increased production per cow, milk production in 1998/99 is expected to total 161.3 billion pounds, up from 156.5 billion in 1997/98. Thus, with the increased milk production per cow, feed use by the dairy industry will rise substantially. Food, Seed, and Industrial Use of Corn Food, Seed, and Industrial Uses of Corn To Increase in 1998/99 Food, seed, and industrial (FSI) use of corn is expected to rise 4 percent from a year earlier in 1998/99. Corn used for high fructose corn syrup and ethanol will post the largest increases. Food, seed and industrial (FSI) use of corn in 1998/99 is expected to total 1,860 million bushels, up from 1,782 million in 1997/98. FSI use would represent 20 percent of total use, the same as in 1997/98, and up 1 percentage point from 1996/97. Corn use in 1998/99 is expected to be up for high fructose corn syrup (HFCS), ethanol, cereals, and other products, but down for glucose, dextrose, starch, beverage alcohol, and manufacturing alcohol. Corn used for HFCS production in 1998/99 may total 565 million bushels, up 6 percent from the 532 million bushels used in 1997/98. HFCS is primarily used in soft drinks, for which sales have expanded as companies add more soft drink machines and other merchants sell larger sized containers. Mexico continues as an important customer for HFCS. In 1997/98, corn used to make glucose and dextrose was about the same as in 1996/97, after rising 4 percent from 1995/96. Many bakery producers have been reformulating their low-fat products. In the process, they are likely cutting the use of corn sweeteners, which may have caused the slowing in glucose and dextrose production. In the first 6 months of the 1998/99 corn marketing year, corn used in the production of glucose and dextrose was down 6 percent from the same period in 1997/98 and use for the entire 1998/99 marketing year may be down 5 million bushels from the 245 million used in 1997/98. In 1998/99, corn used in starch production is expected to be down 1 percent from the 233 million bushels used in 1997/98. In the first half of the 1998/99 corn marketing year, corn used for starch production was down 3 percent from the same period in 1997/98. Normally, one would expect starch use to be strong when the economy is strong because starch is used in a myriad of products, including wallboard and paper. However, production of wheat starch has likely increased due to import limits on wheat gluten that were recently mandated by the International Trade Commission. Therefore, more gluten is being produced in the United States and large amounts of wheat starch is produced in the process. Although some of the wheat starch is used to make ethanol, it is likely also a strong competitor for corn starch in most uses. Monthly ethanol production reported by the Energy Information Administration in the Department of Energy suggests that corn used to make ethanol in September 1998-February 1999 totaled 265 million bushels, up from 238 million in the same period a year earlier. This is the largest first-half use since the 1994/95 record year, when 273 million bushels were used. This production reflects higher use of capacity and the new plants that have been added in the last year to take advantage of various State-level ethanol production incentives. Also, the decline in corn prices has encouraged additional production. However, refiner prices for gasoline in December 1998 (the latest available) were $0.426 per gallon, down from $0.70 in 1997, and alcohol prices were slightly over $1 per gallon in December 1998, down from around $1.20 a year earlier. The low gasoline prices relative to alcohol have not encouraged splash blending for increased octane and ethanol stocks are large. Corn used to make ethanol for all of 1998/99 is estimated to be up 12 percent from the 481 million bushels used in 1997/98. Some developments that may affect ethanol in the future are the widespread finding of methyl tertiary butyl ethylene (MTBE, an oxygenate that competes with ethanol) in ground water and efforts to end mandatory oxygen requirements for gasoline. Some States have decided to ban MTBE to reduce ground water contamination and ethanol would be the likely oxygenate replacement, at least in some locations. However, gasoline refiners claim that if oxygenates were not mandated by the Clean Air Act, "clean burning" gasoline could be produced and eliminate the need for oxygenates. Beverage and manufacturing alcohol production in 1998/99 is expected to use 127 million bushels of corn, down 5 percent from the estimated 133 million bushels used in 1997/98. A slowing of beverage and manufacturing alcohol exports suggests production will likely be down. World Coarse Grain Outlook Global Coarse Grain Production and Consumption Change Little, U.S. Corn Share Increasing In 1998/99, U.S. corn is capturing a larger share of world coarse grain production and trade. Foreign production is dropping because of low world prices and adverse weather in some countries. Reduced production and supplies are limiting consumption in some countries, and reduced economic growth is contributing to stagnating consumption in others. Foreign Coarse Grain Production Declines Foreign coarse grain production in 1998/99 is forecast to decline 2 percent, a drop of 14 million tons. Meanwhile, U.S. coarse grain production is estimated up 11 million tons, offsetting most of the decline elsewhere. The largest drop is in the former Soviet Union, where production is estimated to have plummeted by 30 million tons, a drop of 44 percent. Wet conditions delayed winter grains seedings and later, drought accompanied with wind and high temperatures in several key producing regions compounded problems. Barley and corn yields were especially hard hit in Russia, as well as corn yields in Ukraine. In Eastern Europe, coarse grain production is estimated down 8 million tons, with the largest drop in Romania, which suffered from the same problems that reduced production in neighboring Ukraine. In the EU, a higher set-aside reduced barley acres by 4 percent, as producers took more area out of coarse grains because wheat was more profitable. Corn area and yield each dropped 6 percent, as dryness in some areas kept yields below the previous year's record. EU coarse grain production dropped 5 million tons. Argentina's 1998/99 coarse grain production, mostly corn, is forecast down 6 million tons, as area declined because of more attractive prices for oilseeds, and yields dropped from the previous year's record because the exceptionally favorable growing conditions were not repeated. Drought has damaged the corn crop in South Africa, dropping forecast coarse grain production 1.6 million tons. Low prices discouraged planting of coarse grains in Australia, dropping forecast production more than 1 million tons. Reduced production of barley and oats more than offset a sharply larger sorghum crop. The 1998/99 declines in coarse grain production are partly offset by increases in several countries. China's production increased 21 million tons, because corn production rebounded from the previous year's drought. Area remains high because the government supports prices above world levels and subsidizes exports. In Sub-Saharan Africa, excluding the Republic of South Africa, coarse grain production is forecast up over 5 million tons because growing conditions have been mostly favorable and several countries are rebounding from drought. Most coarse grains in the region are used for food, and sometimes do not enter commercial marketing channels. North Africa's coarse grain production is estimated up 1.8 million tons in 1998/99 as Algeria and Morocco rebound from drought. Brazil's production is forecast up 1.6 million tons because internal corn prices were higher than world prices. The higher internal prices favored corn instead of soybeans, boosting Brazil's corn area enough to offset some decline in yields caused by dryness in Rio Grande do Sul. India's coarse grain production is forecast up 1.5 million tons because of increased area. And Canada boosted coarse grain production because of record yields, with corn yields in Ontario exceptionally high. Coarse grain production even increased 1 million tons in the Middle East, with high government support prices boosting barley production in Turkey. World corn production in 1998/99 is forecast up 3 percent to 592 million tons, largely because of increased production in China and the United States. In contrast, global barley production is expected to drop 11 percent to 138 million tons, mostly because of bad weather in the former Soviet Union, but also because low prices caused producers to reduce area in Australia, Canada, Eastern Europe, and the EU. World sorghum production is forecast up 8 percent to 62 million tons, despite reduced U.S. production, because of increased production in India (up 3.3 million), Sub- Saharan Africa (up 2.4 million), and China (up 0.9 million), countries that use most of their sorghum for human consumption, and in Mexico (up 1.3 million). Global oats production is expected to drop 18 percent in 1998/99 to 25 million tons, mostly because of the sharp drop in the former Soviet Union, although unfavorable weather also reduced production in the EU and Australia. World rye production is forecast down 17 percent to 20 million tons, also because of crop damage in the former Soviet Union. World Coarse Grain Consumption Expected To Stagnate in 1998/99 Foreign coarse grain consumption is forecast down 3 million tons in 1998/99, a decline of only 0.5 percent. While feed grain prices are low in U.S. dollars, they are often higher in local currencies. In addition, the weak economic performance has reduced incomes, and demand for meat in some countries. Foreign feed use of coarse grains is expected to fall 9 million tons in 1998/99, but when the former Soviet Union, Eastern Europe, and the EU (regions with reduced production) are taken out, coarse grain feed use is expected to rise about 5 million tons, a 1.8- percent increase. Meanwhile, foreign non-feed use is expected to increase 5 million tons, mostly because of increased production in India and parts of Sub-Saharan Africa, where coarse grains are traditional staple foods. The largest drop in consumption is expected to occur in the former Soviet Union, where production problems and limited financial means have caused a continued liquidation of animals, dropping forecast feed grain use by more than 10 million tons in 1998/99. EU coarse grain feed use is expected drop 3 million tons because of increased wheat feeding. A small increase in food, seed, and industrial use is only partly offsetting. In Latin America, an increase in Mexico's feed use is mostly offset by reductions in the rest of the region. However, feed grain consumption is expected to grow in the Middle East, China, and South Asia. Moreover, in the rest of Asia, a region where feed grain consumption dropped because of economic problems in 1997/98, consumption in 1998/99 is expected to increase 1.5 million tons. While total world coarse grain consumption is forecast down slightly, world corn consumption is forecast up 4 million tons in 1998/99, an increase of less than 1 percent. Global barley consumption is expected to drop 4 million tons, mostly in the former Soviet Union, but also in the EU and Eastern Europe. Increased barley consumption in North Africa (Algeria) and the Middle East (Saudi Arabia) limit the reduction. World sorghum consumption is forecast up 3.5 million tons, with most consuming countries increasing use except the United States and Japan. Global oats and rye consumption are down mostly because of reduced supplies in Russia. World Coarse Grain Stocks To Increase Slightly in 1998/99 Although world coarse grain production is expected to be down slightly from a year earlier, while global consumption is forecast up marginally, production is still forecast almost 3 million tons larger than consumption, boosting forecast ending stocks for the third straight year. However, most of the major exporting countries are expected to increase stocks, while most of the stocks decline is expected in the former Soviet Union. Russia does not have the financial strength to offset reduced production with imports and prices within Russia are not aligned with world prices, so the tight supply in Russia has only a small direct effect on world prices. In the United States, the world's largest corn exporter, coarse grain ending stocks are expected to increase almost 11 million tons. Ending stocks are also projected to increase in China, another major corn exporter. In the EU, the world's largest barley exporter, coarse grain ending stocks are forecast up 10 percent from last year's record high. While total world coarse grain stocks are expected to increase only marginally, global corn stocks are forecast up 10 percent, with the increase concentrated in the United States and China. World sorghum stocks are forecast up 18 percent, also in the United States and China. In contrast, barley, oats, and rye stocks are dropping, especially in the former Soviet Union. However, barley stocks are increasing in the EU. World Coarse Grain Trade Increasing Modestly in 1998/99 World coarse grain trade is forecast at 90 million tons in 1998/99, up 4 percent from the low levels of the previous year, but remains 17 percent below the 1980/81 record. Import growth is expected in the Middle East, especially in Saudi Arabia, where increased barley imports are needed to maintain sheep, goats, and camel herds because the previous year's exceptional grazing conditions were not repeated. In Latin America, Mexico has expanded corn imports to meet increased demand and maintain stocks, but imports by most of the rest of the region are growing slowly. With a rebound from drought, increased barley production in parts of North Africa is limiting the growth of imports. Most of the increase in world coarse grain trade in 1998/99 is expected in barley and rye. Increased shipments of rye are expected from Europe to South Korea and Russia. World corn trade is forecast up less than 1 percent, while sorghum trade is expected to decline slightly. U.S. Corn Exports Rebound in 1998/99, But Sorghum Exports Down World corn trade is expected to expand slowly in 1998/99, but U.S. corn exports will rebound because of reduced competition. Reduced U.S. supplies of sorghum will limit exports. Early Season U.S. Corn Exports Up From Last Year's Slow Pace According to U.S. Export Sales, corn export commitments (shipments plus outstanding sales) through the first 7 months of 1998/99 (September/August marketing year), were up 21 percent from a year earlier, but were down 8 percent compared with 1996/97. The comparison with 1996/97 is revealing because U.S. corn exports for all of 1998/99 are forecast at 45.7 million tons, about the same as the 45.6 million achieved in 1996/97. In 1996/97 exports were exceptionally strong in November, but relatively small in May, June, and July, when competitor shipments increased. This year, cumulative exports as of April 1were down from shipments during the first 7 months of 1996/97, but outstanding sales were 7.1 million tons compared with 6.0 million in 1996/97, indicating that late season shipments are expected to be higher this year than 2 years ago. The destination with the largest rebound from last year is South Korea, with commitments up 66 percent. Reduced competition from China, and somewhat lower feed wheat imports have boosted U.S. corn shipments. Although U.S. commitments have rebounded, they remain down 13 percent compared with 1996/97. According to U.S. Export Sales, corn export commitments are up sharply to Latin America. Mexico is the largest destination, and corn export commitments are up 46 percent from a year ago and 85 percent above 1996/97. Mexico has repeatedly opened additional corn import quotas to meet growing demand and maintain stocks. Although Venezuela's total corn imports are forecast little changed in 1998/99, the growth in U.S. share has been dramatic, with commitments up 91 percent from last year and 82 percent above 2 years ago. U.S. corn exports are also up significantly to markets like Brazil, Chile, Ecuador, and Peru. Although some of these countries are increasing total corn imports, reduced competition from Argentina explains much of the increase in U.S. exports to the region. Japan remains the largest importer of U.S. corn, but imports are forecast down 3 percent in 1998/99. The weak economy has hurt meat demand in Japan, and meat imports provide stiff competition for locally produced meat. The ban on pork imports from Taiwan because of disease problems gave Japanese producers some respite, but other meat exporters increased shipments. U.S. corn export commitments to Taiwan are up slightly from last year. Taiwan's hog numbers have begun to stabilize after liquidation caused by hoof and mouth disease, but corn imports remain much below the pre-disease levels. Exports to Malaysia and Indonesia are also up some from last year, but nowhere near the levels before the financial crisis caused meat production to plummet. Prospects for future sales to Malaysia are reduced by the recent outbreak of disease among the hog herd, leading to large liquidations. U.S. corn export commitments are increasing to North Africa and the Middle East, with Egypt and Saudi Arabia the leading destinations. Rapidly expanding populations and limited land with good production potential are expected to make the region gradually more dependent on feed imports. U.S. corn export commitments are up to most importing countries in the region. U.S. corn exports to the former Soviet Union are expected to increase this year because 0.5 million tons of corn have been included in the aid package for Russia. However, U.S. corn shipments to the EU remain much lower than 2 years ago because of controversy about genetically modified corn. Spanish and Portuguese importers have chosen to import from regions such as Argentina and Eastern Europe that do not grow unapproved GMO corn varieties. U.S. Corn Exports Up Because of Reduced Competition, Despite Sluggish Demand Growth U.S. 1998/99 corn exports are expected to reach the level of 2 years ago because of reduced competition. Although competition in the corn market in 1998/99 is expected to be more favorable for the United States, importers are not likely to significantly increase demand or generate more trade. World corn trade in 1998/99 is projected to increase less than 1 percent from the previous year's depressed level. Continued foreign exchange constraints, exacerbated by the strong U.S. dollar, make it hard for some countries to increase corn imports. Moreover, sluggish or negative income growth is limiting consumer demand for meat, especially in some Asian countries. World corn trade in 1998/99 is forecast down 4 percent from 1996/97, and down 11 percent from 1994/95. Although global corn consumption has increased significantly over the last two decades, foreign production has also increased, leaving world corn trade stagnant. Low international corn prices gave producers in Argentina an incentive to shift to alternative crops, and the previous year's record yields are not likely to be repeated, dropping forecast corn production 25 percent, or almost 5 million tons. Because of reduced supplies, Argentina's 1998/99 corn exports are forecast down 3.8 million tons to 9 million. This is 1.2 million tons less than Argentina exported in 1996/97. With the world's second largest corn exporter sharply reducing shipments, the United States is expected to increase market share. China has emerged as the third largest corn exporter. It is difficult to forecast what China will export because government policy decisions, more than prices and economics, determine the level of corn exports. China maintains large corn stocks, but just how large is a state secret. China's corn exports were as high as 12.6 million tons in 1992/93 and less than 0.2 million in 1995/96. China supports internal corn prices above current world market prices, so when it decides to export from surplus stocks in the north, the exports are subsidized by the government. With world corn prices generally low, China has not been selling corn as aggressively as a year ago. However, in March, when the world corn price rallied, China reportedly made large sales. China's 1998/99 corn exports are forecast at 4 million tons, down from 6.2 million a year ago and slightly above the 1996/97 level. South Africa has suffered from drought in the maize triangle, reducing production and limiting exports for the second straight year. Romania is also expected to export less corn because of reduced production, but Hungary is expected to maintain large corn exports during 1998/99. U.S. Sorghum and Barley Exports Down in 1998/99 U.S. sorghum exports are forecast to decline 11 percent in 1998/99 to 4.6 million tons. Reduced U.S. production and supplies have limited the price discounts for export sorghum compared to corn. The two major markets, Mexico and Japan, have reduced the share of sorghum among their mix of imported feed grains. Mexico is expected to boost its own production, and has decided to allow more corn imports. Australia and the Sudan are expected to increase sorghum exports. However, the United States is still expected to account for almost 70 percent of world sorghum trade. U.S. barley exports in 1998/99 (June/May local marketing year) are forecast at less than half the level reached a year earlier, but down only slightly from 1996/97. On the October/September international marketing year, the decline from a year earlier is less than 35 percent, but the forecast, at 700,000 tons, is the lowest since 1978/79. U.S. barley exports are largely determined by how U.S. prices compare with subsidized EU exports. For a period of time last year, the EU did not offer very large subsidies, and Saudi Arabia, finding U.S. prices attractive, bought enough to suddenly become the United States' largest market. World barley trade actually declined in 1997/98 because exceptional rains increased pastures for sheep and camels in Saudi Arabia and the EU was not an aggressive exporter for part of the year. Saudi Arabia is increasing its barley imports in 1998/99, but it is not buying from the United States because the EU and Turkey are providing large subsidies. With record production and large procurements from farmers, Turkey's monopoly grain marketing agency has been an aggressive exporter during 1998/99, with barley exports forecast at a record 1.4 million tons. The long term decline in U.S. barley exports, highlighted by the historically low October/September forecast, is partly caused by the great difficulty of competing with huge subsidies by Turkey and the EU. However, the drop is exacerbated by a declining trend in U.S. area and production. BEGIN BOX New Procedures, Revised Trade Numbers for Grain and Products ERS has changed the way it processes trade data received from the Department of Commerce. New programs using personal computers replaced mainframe computer programs. In the process of reviewing old programs and writing new programs, some codes for corn products were added. In addition, current conversion factors for earlier data were also applied, slightly revising the data. The best available data were used and some prior revisions are included that had been missed in earlier years. As a result, imports and exports for corn, sorghum, barley, and oats grain categories have changed and the trade data in the supply and utilization tables have changed. END BOX Special Article Combining Forward Pricing and Crop Insurance To Reduce Risk in Corn Production Richard Heifner and Keith Coble1/ 1/ Agricultural economists with USDA's Economic Research Service and the University of Kentucky, and Mississippi State University, respectively. Abstract: The potential gains to corn growers from combined use of forward pricing and crop insurance are shown to be modest but worth considering at four locations across the United States. For most farmers, insurance is more effective than forward pricing in reducing income risks because farm yields are relatively more variable than prices. Moreover, insurance costs are reduced by government subsidies. The most effective risk management requires joint use of the two tools. Cash forward contracting tends to be more effective in reducing risk than futures hedging because basis risk is avoided. Differences in risk-reducing effectiveness between types of insurance are small. Keywords: Risk, forward pricing, insurance, futures, options, cash forward contracts, hedging Introduction Crop production is inherently risky. In particular, farmers must be prepared to deal with low returns from crop sales when yield and/or price falls substantially below expectations. To help offset these shortfalls, farmers hold financial reserves, diversify among crop and livestock enterprises, seek off-farm income, buy crop insurance, and contract to set prices for outputs and inputs before delivery. This article focuses on crop insurance and forward pricing, which are widely used methods for reducing within-year risks in crop production.2/ Both methods can be used somewhat independently of the farmer's other risk management strategies. 2/ For a broader discussion of farm risk management strategies, see Harwood et al. Under crop insurance, we include revenue insurance, which pays indemnities when farmers' revenues fall below a guaranteed level, as well as traditional multi-peril crop insurance (MPCI), which pays indemnities when yields fall below a guaranteed level. Forward pricing involves setting a price, or a limit on price, for a product to be delivered in the future. Examples of forward pricing by farmers include: o contracting with a local elevator during the growing season to deliver a specified number of bushels at harvest for a specified price, o selling futures or buying put options on a crop being grown or stored, and o contracting to buy fertilizer or other inputs a month or more before they are to be delivered. This article focuses on forward pricing prospective outputs although the principles also apply to forward pricing inputs. By themselves, forward pricing and crop insurance are time- honored tools for lowering risk. But used together, they provide greater risk reduction than when used separately. Combining them effectively, of course, will vary with a farm's individual circumstances. Among the questions addressed here are: o How do the different types of yield and revenue insurance available to farmers compare in risk-reducing effectiveness with and without forward pricing? o How do yield and revenue insurance affect the amounts that farmers should forward price with futures, options, or cash forward contracts? Most methods of reducing crop-growing risks, such as selecting lower-risk varieties and cultural practices, diversifying among crops, and holding financial reserves, involve trading off some average return for lower risk. The costs of reducing within-year risks by forward pricing are relatively small while the cost of crop insurance is negative for most farmers, who can expect to receive more in indemnities than they pay in premiums over a period of years because crop insurance is subsidized. The benefits obtainable from forward pricing are modest and therefore sensitive to trading costs and possible futures price bias. Forward pricing costs include commissions for futures and options hedging, possible loss of returns on funds deposited with brokers as futures margin deposits, and small price concessions that provide returns to speculators for standing by to take the opposite side of hedgers' trades. These costs typically total to no more than 1 percent of the value of the trade. 3/ A futures price is biased if it is below or above the price most likely to prevail at delivery time. Previous studies generally show little or no bias in crop futures prices (see Kolb, for example). When using cash forward contracts, the farmer also should confirm that a competitive basis (cash-futures price difference) is used to set the forward price. 3/ To illustrate, suppose that the futures price is $2.50, the commission is $60 for buying and later selling a 5,000-bushel contract, the farmer gives up 6 percent return for 6 months on money in a 10-percent margin deposit, and floor traders on the futures exchange earn 1/4 cent per bushel by taking the opposite side when the hedge is placed and lifted. In percentage terms, the costs are: $60/(5,000 x $2.50) = 0.48 for commissions; 0.06 x (6/12) x 0.10 = 0.30 for interest; and 2 x $0.0025/$2.50 = 0.20 for market liquidity, giving a total of 0.98 or about 1 percent of the value of the commodity. Buying crop insurance actually increases average return over time for most farmers because premiums, which approximately equal expected indemnities, are subsidized by the government. For example, the premium subsidy rate for 65-percent yield insurance coverage averaged 41.7 percent in 1998, and will be higher in 1999 by an amount yet to be determined. This means that farmers buying insurance with 65-percent coverage on average can expect to get back more than $1.50 for each dollar they pay for premiums. Prospective returns differ among farmers because premium rate-setting is not an exact science. Before turning to the different types of forward pricing and crop insurance available to farmers, it is important to discuss the nature of risk and its measurement. Risk and Its Measurement Most farmers, like other persons, are risk averse--they prefer a sure income to an uncertain income with the same average or expected level. At the same time, they prefer higher incomes to lower incomes and willingly accept some risk (take some chances) to increase their average incomes. Some are willing to accept more risk than others for a given increase in expected income. Risk management involves finding a given individual's optimal mix of expected income and risk. Uncertainty must be quantified or uncertain situations ranked in some way if risk is to be managed effectively. The concept of probability--the expected relative frequency of a specific event- -is needed for this purpose. The steps in analyzing risk are: (1) identify the possible outcomes under each plan or strategy and estimate their probabilities, and (2) rank the strategies based on the outcome probabilities and the individual's preferences. For example, if one of two otherwise similar strategies gives a 0.02 probability of bankruptcy and the other strategy gives a 0.05 probability of bankruptcy, the first strategy likely would be preferred. Typically, the possible outcomes are numerous and a more general approach is required. This leads to the estimation of probability distributions--tables of numbers or mathematical expressions that give the probabilities for a range of outcomes. The objective is to find the strategy that provides the probability distribution of returns that is most preferred by the decisionmaker. Estimating yield, price, and revenue probability distributions useful for farm decisionmaking is difficult. Yield variability needs to be measured at the farm level. Farm yields generally are more variable than county, State, or national yields, where part of the variability is washed out by averaging. Individual farm yield histories provided by USDA's Risk Management Agency were used in this study to estimate yield variability on representative farms. On the price side, changing market conditions and changing farm programs limit the usefulness of historical data for predicting level and variability. Fortunately, futures and options markets bring together current views of traders about expected prices and price variability. Revenue equals yield times price so co-movements in yield and price must be considered in estimating revenue distributions. Finally, crop insurance and put options, in effect, set lower bounds on the yields and prices that farmers realize, making it harder to estimate revenue distributions. We deal with these estimating problems by drawing historical observations from several sources and using computationally intensive numerical procedures, as explained below. Once crop revenue distributions under alternative strategies are estimated, the distributions must be ranked. In this study, alternative revenue distributions are ranked based on estimated certainty equivalent returns. A certainty equivalent return is the sure return that an individual would find equally desirable as a given uncertain return. For example, a farmer might be indifferent between an uncertain return that averages $300 per acre and a more certain return of $285 per acre. The $15 difference is the added return or premium the farmer requires to accept the added risk, or equivalently, the premium the farmer would be willing to pay to eliminate the risk. To calculate certainty equivalent returns under each risk- management strategy, we first calculate an estimate of expected utility, where utility is an index of satisfaction, which for risk averse persons increases less than proportionally with income. Then we calculate the sure income that would give the same amount of utility. The estimates of risk aversion used here are for rather risk averse farmers. 4/ The degree of risk aversion varies among farmers and other individuals due to differences in age, family obligations, financial situation, and other factors. 4/ Specifically, we assumed relative risk aversion = 2.0 which Hardacker, Huirne, and Anderson (page 102) call "rather risk averse." Forward Pricing Forward pricing and crop insurance help farmers transform the revenue distributions from crop sales to preferred revenue distributions. Forward pricing can be used to reduce price uncertainty on commodities being grown, stored, or processed; to speculate (seek gain from anticipating price changes); or for both purposes jointly. To speculate profitably, one must successfully predict changes in price over a particular interval, such as changes in the December corn futures price from June to November. Competition among traders makes profiting from speculation difficult and leads to "efficient" forward pricing-- futures prices that reflect the best current information about the prospective price at delivery time. Attempts by farmers to increase average revenues through the timing of sales will have limited success (see Zulauf and Irwin). Consequently, this analysis focuses on reducing uncertainty for a given crop-growing operation rather than on how to time sales or trades to gain from anticipated price changes. In pricing forward, the farmer must choose: (1) the type of contract--cash, futures, or options, (2) when to price forward, and (3) how much to price forward. Futures and options are standardized contracts traded on exchanges. For example, a December 1999 Chicago corn futures contract calls for delivery of 5,000 bushels of No. 2 yellow corn at an approved delivery point during the month of December. Such contracts are entered through brokerage houses that have traders on the floors of the exchanges. The distinction between contracts that set a firm price (futures and many cash contracts) and contracts that set a lower bound on price (put options and minimum-price cash contracts) has important implications for farm risk management (see box, "Put Options..."). Commodity contracts entered directly between buyers and sellers without the services of an exchange are called cash contracts to distinguish them from exchange-traded contracts. 5/ By contracting with local buyers, farmers can establish a price and ensure an outlet for their products. Cash contracts can be adjusted in size and delivery terms to fit the needs of the farmer and the buyer. Many types of cash contracts are available to farmers (see box, "Types of Cash Forward Contracts..."). 5/ In June 1998, the Commodity Futures Trading Commission began a 3-year pilot program to permit the purchase and sale of agricultural trade options, which previously had been prohibited. A trade option is an agreement between a commercial buyer and a commercial seller entered without the services of an exchange that gives the buyer the right, but no obligation, to sell(buy), and obligates the seller to buy(sell), a commodity under specified terms on a future date at a set price. Agricultural trade options may be developed to fit a variety of specific needs of buyers and sellers, but they have not been used as of April 1999. Hedging involves establishing a temporary position in futures or options contracts, that normally is eliminated by an opposite transaction as the actual commodity is sold (purchased). The objective is to offset any losses on the cash market with corresponding gains on the futures market. Hedging enables the farmer to quickly establish a competitive price and gain time to search for the best place to sell or buy the actual commodity. The hedger retains basis risk (uncertainty about the difference on a future date between the cash price at the location where the commodity is to be delivered or picked up and the futures price), and must pay commissions. Moreover, the futures hedger must make a margin deposit, normally less than 10 percent of the value of the contract, and be prepared to meet calls for additional margin if the price should move against his/her futures position. The options hedger must pay an up-front premium, but pays no margin or margin calls. Default by the opposite party is not a concern with futures and options, whereas some local buyers/farmers have defaulted on their contracts with farmers/buyers. Default risk is not measured in this analysis. To minimize risk, crop growers generally should begin to forward price prospective outputs, as well as inputs, as resources are committed to producing a particular commodity. This commitment occurs no later than planting time and often earlier, such as when fertilizer is purchased, a land rental agreement is signed, or even when land especially suited to a particular crop is purchased. Most forward contracting with local buyers is done during the growing season. Earlier forward pricing is possible in the futures markets. Corn futures contracts typically begin trading 2 to 3 years before they are due to mature. Hedging more than a year ahead may reduce risks for those farmers who are sure they will be growing the crop in future years. Multi-year hedging generally involves added costs for maintaining margin deposits over an extended period. Forward pricing can completely eliminate revenue uncertainty only when quantities of inputs and outputs are known, as when storing dry grain in good facilities with insect control and fire insurance. In crop growing, however, output generally remains uncertain until harvest. In this case, forward pricing part of the expected crop generally reduces, but does not eliminate, revenue uncertainty. The optimal quantity to have priced forward at any time during the season depends on the yield uncertainty that remains to be resolved, on the yield-price correlation for the farm, and on whether the crop is insured and the type of insurance held. The optimal amount to have forward priced generally increases over the growing season as yield becomes more certain. Estimates of optimal forward pricing ratios at planting time are reported later in this article for different types of forward contracts accompanied by different types of insurance. Once the crop is safely in the bin, a decision to sell or store must be made. Storage for a few months into the marketing season can be profitable if the farmer can store for less than the market price of storage. Thus, for example, if at harvest time, the March futures price exceeds the December futures price by more than the farmer's cost of storage, storage likely will be profitable. The farmer can lock in the storage return, except for basis risk, by selling an amount of the March future equal to the quantity stored and buying the future as the stored grain is priced at delivery time. Crop Insurance Multi-peril crop insurance (MPCI) is government subsidized insurance purchased through private agents that pays indemnities when farmers' yields fall below a guaranteed level. The guarantee levels range from 50 to 75 percent of the farm's historical yield (85 percent in some locations). The indemnity equals the amount by which yield falls short of the guarantee times a price elected by the farmer at signup. Farmers pay a premium at harvest for the insurance, which is based on production practices, individual yield histories, the loss experience in the county, and the level of the yield guarantee. Premiums are set to approximately cover the average cost of the indemnities over a period of years. Since premiums are partly subsidized by the Federal Government, total indemnities exceed premiums for most farmers who carry insurance over enough years. Some insurers offer yield insurance with replacement coverage, which specifies that yield shortfalls will be indemnified at the higher of the price at signup time or the price at harvest. Replacement coverage is particularly helpful to farmers who have forward priced their crops and might have to buy out the contracts at a loss if their yields are down and the price is up. Several new types of crop insurance have been introduced in recent years as pilot programs. Group revenue protection (GRP), introduced in 1993, pays indemnities when county yields fall short of guaranteed levels. It costs less to administer because individual farm yield records are not required. However, participation has been relatively low because many farmers are concerned that county yields may not be low enough to result in an indemnity when their own yields are low. Revenue insurance pays indemnities when crop revenues fall below guarantees. Thus, indemnities depend on both price and yield and, unlike yield insurance, may be paid when yields are normal if price is low enough, or may not be paid when high prices offset low yields. Three types of revenue insurance are available to farmers in designated locations. Under Income Protection (IP), introduced in 1996, and Revenue Assurance (RA) introduced in 1997, the revenue guarantees are based on futures prices at planting time. Under Crop Revenue Coverage (CRC), introduced in 1996, the revenue guarantees are based on the higher of the planting time and harvest time futures prices. Analytical Procedures The analysis involved three steps: (1) estimating the joint probability distribution of futures price, basis, and farm yield for a representative farm in each of four counties; (2) deriving the corresponding revenue distributions that would occur under different sets of insurance and forward pricing strategies, and (3) calculating estimates of certainty equivalent revenue for each strategy at each location. The revenue distributions and certainty equivalent gains under each strategy at each location were estimated numerically. Many calculations are required and the results are approximate, but allow relationships that would otherwise remain obscure to be observed and quantified. Risk-reducing effectiveness is estimated and compared for four types of yield and revenue insurance, which represent the types of insurance currently available to farmers. These are: yield insurance (like MPCI), yield insurance with replacement coverage, revenue insurance that bases indemnities on signup time prices (similar to IP and RA), and revenue insurance with replacement coverage (similar to CRC). Without replacement coverage, the springtime futures price is used to determine losses for calculating yield and revenue insurance indemnities. With replacement coverage the price used is the higher of the springtime futures price and the harvest time futures price. The same methods are used to calculate spring time prices, harvest time prices, and yield losses for all types of insurance in order to identify differences between yield and revenue insurance and demonstrate the effects of replacement coverage. The insurance guarantee is held at 75 percent for all four types of insurance at all locations. Actuarially fair premiums are calculated from estimated yield-price distributions. Premium subsidies equal to 23.5 percent of yield insurance premiums for 75-percent insurance were applied for all types of insurance. This is the average 1998 subsidy rate for 75-percent coverage. Subsidies in 1999 will be higher by an amount yet to be determined, which implies that the gains from insurance in 1999 likely will be greater than shown here. Administrative costs for insurance were disregarded, which amounts to assuming that they are fully covered by government subsidies. Optimal forward pricing levels at planting time are calculated for each type of insurance, as needed. Planting time futures prices were assumed to be unbiased, as discussed earlier, and the harvest time basis was assumed to be the same when forward contracting as when selling at harvest. Forward trading costs were set at 0.2 percent of the value of corn priced forward plus a $60 round-term commission per contract for futures and options. Cash forward buyers were assumed to absorb their commission costs for hedging their contracts with farmers. No charge was make for interest foregone on futures margin deposits, which are assumed to be made using interest bearing government securities. Representative Farms Results are presented for representative farms in four corn growing counties selected from different parts of the country to provide a range of yield variabilities and yield price correlations (figure A-1). Iroquois County in east central Illinois represents the central Corn Belt where relative yield variability is low and yield-price correlation is strongly negative. Lincoln County in west central Nebraska represents an irrigated area with very low yield variability and weakly negative yield-price correlation. Anderson County in east central Kansas represents an area with relatively high yield variability and substantial negative yield-price correlation. Pitt County in east central North Carolina represents an area of high relative yield variability and weakly negative yield-price correlation. Expected yield for each location was set by projecting trends in county yields (table A-1). To estimate yield variability, county yield experience during 1956-1995 was combined with 1985-1994 yield histories for farms with insurance in each county (see Heifner and Coble for more details). Optimal Amounts To Price Forward To price forward, a farmer must choose not only the type of contract--cash, futures, or options--and the date of delivery or contract maturity, but also the hedge or forward pricing ratio (the proportion of the expected crop to sell forward). 6/ Results for forward pricing ratios that maximize certainty equivalent income are reported here. These optimal forward pricing ratios are strongly affected by forward pricing costs. However, changes of plus or minus 10 percent in the ratios have relatively small effects on certainty equivalent income. 6/ When hedging with options, the strike or guaranteed price must also be selected. The options hedge results reported here are for at-the-money (strike price equal to the futures price) puts. Table A-2 shows the estimated optimal forward pricing ratios for the various types of forward pricing and insurance at the four locations. The optimum forward pricing ratios are highest in Lincoln County, NE where relative yield risk is smallest, and lowest for Anderson County, KS where yield risk is relatively high and the negative yield-price correlation is rather strong. Cash forward pricing ratios are higher than futures hedge ratios at all locations, reflecting the absence of basis risk. Options hedge ratios tend to be larger than futures hedge ratios in the Corn Belt because options hedgers incur no risks of having to buy back contracts at a loss as do futures hedgers. However, options hedge ratios are lower where yield risks are high. Yield insurance tends to increase the optimal hedge. This was expected because holding yield insurance amounts to reducing yield uncertainty. If yields were certain, the optimal forward pricing ratio would approach one. The effect of yield insurance on the hedge ratio is enhanced by replacement coverage. A surprising result, and one previously reported by Coble and Heifner, is that revenue insurance does not completely eliminate the usefulness of forward pricing in reducing risk. The initial expectation was that revenue insurance would substitute in large part for forward pricing as well as for yield insurance. The study found instead, that optimal forward pricing ratios are about the same with revenue insurance at the 75-percent level as without insurance. However, optimal forward pricing levels generally are lower with revenue insurance than with yield insurance. Farmers who feel they can predict futures price changes might want to deviate from minimum-risk forward pricing ratios, such as reported here. For example, they might forward price more than the minimum-risk level if they think the crop will be larger and the harvest time price lower than current estimates, or less than the minimum-risk level if they expect a small crop or higher prices. Effects of Insurance and Forward Pricing on Farmers' Risks We turn now to the effects of combinations of insurance and optimal forward pricing on farmers' risks. Figure A-2 provides estimates of what rather risk averse farmers might gain from insuring and pricing forward at the four locations. Each panel in the figure contains a set of bars for no insurance, yield insurance, yield insurance with replacement coverage, revenue insurance, and revenue insurance with replacement coverage. The four bars in each set measure the certainty equivalent gains with no forward pricing, cash forward contracting, futures hedging, and options hedging, respectively. Only three or fewer bars appear for the first set in each figure because there is no gain when neither forward pricing or insurance is used and hedging without insurance is ineffective at some locations. We emphasize that the estimated certainty equivalent gains provide useful rankings of strategies at a given location, but the dollar magnitudes depend heavily on the degree of risk aversion assumed. The gains would be larger for farmers who are more risk averse and smaller for farmers who are less risk averse. Special caution is needed in comparing results between counties where farms differ substantially in size, crop mix, and wealth. The figure indicates that the benefits provided by insurance and forward pricing are modest for rather risk averse farmers--less than $15 per acre in all cases shown. Although these gains per acre are modest, the total gains would be substantial on many farms. The estimates include the expected value of government insurance premium subsidies at 1998 levels, which are represented by horizontal lines in each figure. The heights of the bars above the horizontal lines measure risk reduction gains whereas the gains from the subsidy are represented by the distances below the horizontal lines. The risk reduction gains from insurance alone (excluding the value of the subsidies) exceed those from forward pricing alone at all locations except Lincoln County, NE. This is because: (1) yields are relatively more variable than prices at most locations and (2) forward pricing involves costs, and basis risk when futures or options are used. Almost all of the gain comes from insurance in Anderson County, KS and Pitt County, NC. Comparison of Different Kinds of Forward Pricing The bars for each type of insurance on each chart compare the risk-reducing performance of the different types of forward pricing when combined with that type of insurance. Cash forward pricing produces larger certainty equivalent gains than futures hedging in all cases because basis risk is avoided and futures and options commission costs are assumed to be borne by the buyer. This advantage would be less to the extent that grain buyers pass along their hedging costs to farmers as lower forward prices. Nonetheless, these results show that basis risk and trading costs deserve attention. Futures hedging consistently outperforms options hedging according to the risk measure used here. This reflects the fact that a producer always can ensure a higher price by selling futures than by buying a put option. However, this measure does not take into account the value of avoiding margin calls or retaining the opportunity to benefit from price rises, which options hedging provides. Margin calls normally are balanced by increases in the value of the crop being produced, but they must be paid immediately while the crop cannot be sold until harvest. (See box "Put Options...".) Farmers who can arrange ahead of time with lenders for credit to cover margin calls should not find margin calls burdensome. The figures show that revenue insurance does not fully substitute for optimal forward pricing. In other words, forward pricing provides substantial additional gains for producers with revenue insurance, especially in Iroquois County, IL and Lincoln County, NE. This is because revenue insurance guarantees only 75 percent of crop value whereas forward pricing guarantees 100 percent of the price. For example, if yield were certain, a cash forward contract would amount to a 100-percent revenue guarantee. In work not shown here, we have demonstrated that higher levels of revenue insurance would reduce the need for, and usefulness of, forward pricing. However, raising revenue guarantees tends to lower farmers' incentives to apply inputs by making the return from a bushel lost higher relative to the return from a bushel produced. Comparison of Different Kinds of Insurance Differences between types of insurance in risk-reducing effectiveness are small at all four locations. Without forward pricing, revenue insurance gives slightly larger gains. The advantage of revenue insurance is reduced when optimal forward pricing is used. Replacement coverage offers no advantage for farmers who do not price forward, but provides a modest benefit for those who do. Revenue insurance with replacement coverage comes out ahead at all locations, regardless of the type of forward pricing that is used, but its advantage is small. Concluding Remarks This analysis shows that the gains attainable by rather risk averse farmers from forward pricing and crop insurance are modest, but worthy of consideration. Insurance is more effective in reducing income risks than forward pricing for most farmers because farm yields are relatively more variable than prices. Moreover, insurance costs are reduced by government subsidies. The most effective risk management requires joint use of the two tools. Differences in risk-reducing effectiveness between types of insurance are small. Without forward pricing, revenue insurance is somewhat more effective in reducing risk than yield insurance. Revenue insurance with replacement coverage produces the greatest risk reductions. However, the advantage of revenue insurance over yield insurance is diminished when farmers price forward at optimal levels. Optimal forward pricing ratios tend to be higher where yields are less variable and where the yield-price correlation is less negative. For cash forward contracting without insurance, the optimal ratios range from about a third to a half of the expected crop in non-irrigated areas. The greater yield certainty provided by irrigation can jump this ratio to over 80 percent. Crop yield insurance raises optimal forward pricing ratios by 15 to 25 percent in the non-irrigated locations. Revenue insurance does not eliminate the usefulness of forward pricing. It has mixed and relatively small effects on optimal forward pricing ratios. Optimal futures hedge ratios are lower than optimal cash forward contracting ratios in most cases. Optimal hedge ratios for options are very sensitive to yield variability and futures and options trading costs. Optimal ratios for at-the-money puts tend to be higher than for futures in areas of relatively sure yields, but lower where yield variability is high. Basis risk is important and makes cash forward pricing more effective in reducing risk than hedging with futures or options, provided that the cash contract is entered at a competitive price. Hedging directly in futures or options can provide the farmer with price assurance while he or she searches for the best available cash forward contract. References Coble, Keith H. and Richard Heifner. "The Effect of Crop or Revenue Insurance on Optimal Hedging." Proceedings, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management, April 20-21, 1998. Hardacker, J. Brian, Ruud B. M. Huirne, and Jock R. Anderson. Coping With Risk in Agriculture. New York: CAB International, 1997. Harwood, et. al. Managing Risk in Farming, Concepts, Research, and Analysis. U.S. Dept. Agriculture, Economic Research Service. Agricultural Economic Report Number 774. March 1999. Heifner, Richard and Keith Coble. "The Risk-Reducing Performance of Alternative Types of Crop Yield and Revenue Insurance with Forward Pricing." Report to the Risk Management Agency by the Economic Research Service, U.S. Department of Agriculture. December 1998. Kolb, Robert W. "Is Normal Backwardation Normal?" Journal of Futures Markets 12, 1(1992): 75-91. Zulauf, Carl. R. and Scott H. Irwin. "Market Efficiency and Marketing to Enhance Income of Producers." Review of Agricultural Economics 20,2(Fall/Winter 1998):308-331. BEGIN BOX Put Options and Minimum-Price Contracts Compared With Fixed-Price Contracts Contracts that set lower bounds on price (put options and minimum-price cash contracts) instead of setting the price (futures and many cash forward contracts) offer both advantages and disadvantages to farmers. Put options and futures are compared here, but the principles also apply to cash contracting with minimum-price and fixed-price contracts. The buyer of a put option gains the right, but incurs no obligation, to sell a futures contract at a specified price, called the strike price, at any time until the option expires. For example, a farmer who buys a $2.50 put option on the December corn future acquires the right to sell a 5,000-bushel December corn futures contract at $2.50 any time until late November. This option would be valuable (in-the-money) if the December future declined to below $2.50 by the end of November, but it would expire worthless (out-of-the-money), if the December future price exceeded $2.50 in late November. Profits on such a put option position would tend to offset losses in expected returns from the farmer's crop that result from a price decline. Under a minimum-price contract, the farmer receives a price specified at the time the contract is entered or a price prevailing at delivery time, whichever is higher. Put options and minimum-price contracts allow farmers to establish a price floor while leaving room to gain from subsequent price increases. The opportunity to gain comes at a cost-- either an up-front option premium, or an equivalent payment or price concession by those using minimum-price contracts. Consequently, the price floor, net of premium, established by buying a put option (entering a minimum-price contract) inevitably is lower than the price floor established by selling the corresponding futures contract (entering a fixed- price cash contract). A futures position makes money about half the time, while holding an option makes money less than half the time, although the losses are limited by the cost of the premium. When the premium is taken into account, buying puts--like selling futures--is approximately a break-even proposition on average over a period of years, except for commissions. It can reduce the uncertainty of returns at small cost. This is particularly important if low returns in a given year would disrupt the farm business or result in hardship for the farm family. Absence of margin calls makes options hedging more appealing than futures hedging for many farmers. Futures margin calls occur when the futures price moves against the hedger's futures position. In a sound hedge, the value of the commodity being produced or stored increases by the amount of the margin call, but the margin call must be paid immediately while the cash commodity may not be ready for sale until harvest. This can lead to a serious cash flow problem for the hedger, if the futures price should rise substantially. Thus, it is prudent for farmer- hedgers to arrange for credit to cover margin calls before they occur. A nonrefundable premium must be paid when a put option is purchased, and an initial margin deposit must be made to hedge in futures. On average, the hedger gets these payments and deposits back by selling the option for a gain, exercising the option and trading out of the resulting futures position for a profit, or by withdrawing the margin deposit. For hedging with options or futures, expected costs include commissions and possibly a small return to speculators for bearing risk and providing a liquid market. Local buyers who offer minimum-price contracts and hedge their positions in put options incur similar costs that may be passed on to farmers. END BOX BEGIN BOX Types of Cash Forward Contracts Available to Farmers Most firms that buy grains from farmers offer a variety of forward contracts. All of the contracts assure the farmer an outlet and involve a commitment by the farmer to deliver a product of a specified quality during a specified time interval. Some contracts reduce the farmer's exposure to price uncertainty while others allow farmers to retain exposure to price uncertainty in the hope of gaining from a price increase. Contracts that reduce the farmer's exposure to uncertainty about the general price level for a commodity include: Fixed or "flat" price contracts--forward contracts that set a firm price for the product. This is the most common type of cash forward contract and eliminates the farmer's exposure to both basis risk and general price level risk for the commodity. These contracts are useful to farmers for minimizing price risk. "Minimum-price" contracts--contracts that establish a lower limit on the price the farmer will receive, but provide for a higher price if the market price rises. The higher price normally is determined on the date the farmer chooses and may be either the buyer's bid price to farmers or a futures price minus a specified basis, as prescribed in the contract. These contracts, like put options, are useful to farmers for setting a lower bound on price. "Hedge-to-arrive" contracts--contracts that fix a futures quote to which the buyer's basis at delivery time is applied to determine the price paid to the farmer. As with futures hedging, the farmer eliminates exposure to general commodity price level uncertainty, but remains exposed to basis uncertainty. These contracts are useful to farmers who want to eliminate exposure to general price risk for a commodity while avoiding commissions and margin deposits. Contracts that leave the farmer exposed to uncertainty about the general price level for a commodity include: "Basis" contracts--contracts that establish a basis relative to a particular futures price that is subsequently applied to determine the price received by the farmer. The farmer eliminates basis risk but retains exposure to changes in the general price level for the commodity. These contracts enable farmers to ensure an outlet without making a price commitment. "Price later" contracts--contracts that provide for immediate transfer of title and establish rules for determining price at a later date of the farmer's choosing. The rules generally specify that the price will equal either an observed futures price adjusted for basis or the buyer's bid price. In the first case, the farmer eliminates basis risk but retains uncertainty about the general commodity price level. In the second case, the farmer remains fully exposed to price risk. By giving up title the farmer increases his/her chance of loss if the buyer should go bankrupt. These contracts may be used to arrange a physical outlet for a grain while retaining price level exposure. END BOX Glossary Crop insurance--a contract committing an insurer to pay a farmer an indemnity (payment for loss) if yield or revenue on a specified farm, unit, or area falls below a guaranteed level, in return for which the farmer pays a fixed premium. Cash contract--an agreement entered directly between a buyer and seller without the services of an exchange that sets price, or a formula for determining price, and other terms for a trade to occur on a future date. Certainty equivalent return--the sure return that an individual would find equally desirable as a given uncertain return. Correlation--the degree to which paired observations on two variables, such as yield and price, tend to deviate from their respective averages in the same or opposite direction. Forward pricing--entry of a buyer and seller into an agreement (contract) that sets price, or a limit on price, for a trade to occur on a future date. Forward pricing (hedge) ratio--the proportion of an expected crop that is forward priced. Futures contract--a standardized agreement entered through an exchange to buy or sell a commodity or other asset at a specified price in the future. Hedging--entering into a futures or options contract to reduce exposure to uncertainty pending an anticipated cash sale or purchase. Probability--expected relative frequency of an event. For example, the probability of a head when flipping a fair coin is 1 out of 2 or 0.5. Put option--a standardized agreement entered on an exchange that gives the buyer (option holder) the right, but no obligation, to sell and obligates the seller (option grantor) to buy a specific futures contract at a specified price (the strike price) over a specified time interval. Replacement coverage--a provision in some yield and revenue insurance policies that calls for indemnities to be calculated using the higher of the price at signup and the price at harvest. Revenue insurance--a type of crop insurance that pays indemnities when estimated revenues from a commodity being grown or produced fall below a guaranteed level. Risk--chance or uncertainty that affects an individual's well being. Risk aversion--preference for a sure return to an uncertain return that has the same average. Trade option--an agreement between a commercial buyer and a commercial seller entered without the services of an exchange that gives the buyer the right, but no obligation, to sell(buy), and obligates the seller to buy(sell), a commodity under specified terms on a future date at a set price. Yield insurance--a type of crop insurance that pays indemnities when crop yields fall below a guaranteed level. ERS Feed Grain Information: How To Get It The Feed Outlook is available electronically 11 times a year at 9:00 a.m. the second working day following the release of the World Agricultural Supply and Demand Estimates (WASDE) report. It contains brief descriptions of domestic and international market conditions and outlook, as well as key tables of statistical information. The Feed Outlook is available at no charge and may be accessed using any of the following electronic communication media. 1. World Wide Web USDA's crop and livestock reports and economic situation and outlook reports (including the Feed Outlook) are available on the USDA Economics and Statistics System maintained by Cornell University's Albert R. Mann Library. Access reports at http://usda.mannlib.cornell.edu/. Or go to the ERS website at http://www.econ.ag.gov. Select "Outlook Reports," then "Feed." 2. E-mail Report subscriptions and/or report notices are available at no charge through e-mail from the USDA Economics and Statistics System. To subscribe, go to http://usda.mannlib.cornell.edu/, select "Reports by e-mail" from the menu at the top of the page, and follow the prompts. For assistance with Internet delivery or e-mail subscriptions, e- mail help@usda.mannlib.cornell.edu or call 607-255-5406. 3. ERS AutoFAX Use the telephone attached to your FAX machine to call 202-694- 5700. Follow the voice prompts and ask for document number 12102 for the latest edition of the Feed Outlook. Document 12000 will give you a directory of Feed documents available on AutoFAX. If you are looking for other material and don't know the document number, please request document number 00012 for a directory of situation and outlook material. For more information about this service, including document ID numbers, call 202-694-5050. The annual Feed Situation and Outlook Yearbook is also available at no charge via the electronic outlets noted above. In addition, printed copies are for sale by ERS-NASS. Call 1-800- 999-6779 (8:30-5 ET, M-F) to order a copy or to request a free catalog of available products and services. List of Tables and Figures Text tables: 1. U.S. barley malt exports by leading destinations, 1994-1998 2. Corn: Food, seed and industrial use, 1980/81-1998/99 3. World coarse grain trade: Major exporters and importers, by commodity, 1996/97-1998/99 Text figures: 1. U.S. Feed Grain Production 2. U.S. Feed Grain Supply and Total Use 3. Ending Stocks of Feed Grains 4. Corn Harvested Acres and Yields, 1975-97 5. U.S. Corn Production Characterized By Large Variability 6. Corn Disappearance by Type of Use 7. U.S. Corn Prices: Central Illinois Cash and Average Farm Price 8. Season Average Corn Prices Received by Farmers 9. Percent of Corn Marketed by Month 10. Sorghum Harvested Acres and Yield 11. Sorghum Disappearance by Use 12. Barley: Monthly Prices Received by Farmers, June 1992-March 1998 13. Oats Imports Account for Larger Share Of Supply 14. Oats Used for Food 15. Hay: Prices Received by Farmers 16. Hay Stocks on December 1 per Roughage Consuming Animal Unit 17. Feed Grains and Wheat Fed per GCAU 18. GCAU's, Prices, and Feed and Residual Use of Grains 19. Grain and Other Concentrates Fed to Milk Cows First Day of Quarter, 19975-98 20. Protein Feed Prices Converted to Price per Pound of Protein 21. Wet Mill Product Prices 22. Exports of HFCS, 1989/90-1997/98 23. Net Corn Costs for Wet and Dry Milling 24. Consumption of Caloric Sweeteners 25. World Coarse Grain Production and Consumption 26. World Coarse Grain Exports 27. Monthly U.S. Corn Exports Special article tables: A-1. Selected measures of yield and price variability for counties included in the analysis A-2. Minimum-risk forward pricing ratios for corn alternative kinds of insurance Special article figures: A-1. Relative yield variability and yield-price correlation for farms in the analysis A-2. Certainty equivalent income gains from conbining insurance and forward pricing Appendix Tables 1. Corn, sorghum, oats, barley: Farm price, planted acreage, harvested acreage, production, and yield, 1960/61-1998/99 2. Foreign coarse grains: Supply and disappearance, 1975/76- 1998/99 3. Feed grains: Marketing year supply and disappearance, 1975/76-1998/99 4. Corn: Marketing year supply and disappearance, 1975/76- 1998/99 5. Sorghum: Marketing year supply and disappearance, 1975/76- 1998/99 6. Barley: Marketing year supply and disappearance, 1975/76- 1998/99 7. Oats: Marketing year supply and disappearance, 1975/76- 1998/99 8. Corn: Marketing year supply and disappearance, by quarter, 1975/76-1998/99 9. Sorghum: Marketing year supply and disappearance, by quarter, 1975/76-1998/99 10. Barley: Marketing year supply and disappearance, by quarter, 1975/76-1998/99 11. Oats: Marketing year supply and disappearance, by quarter, 1975/76-1998/99 12. Farm programs and participation, 1975-1998 13. Average prices received by farmers, United States, by month, and loan rate, 1975/76-1998/99 14. Cash prices at principal markets, 1975/76-1998/99 15. Feed-price ratios for livestock, poultry, and milk, by month, 1983/84-1998/99 16. Byproduct feeds: Average wholesale price a ton, bulk, specified markets, by month, 1975/76-1998/99 17. Processed corn products: Quoted market prices by month, 1983/84-1998/99 18. Corn, sorghum, barley, and oats exports, 1975/76-1998/99 19. Corn, sorghum, barley, and oats imports, 1975/76-1998/99 20. U.S. exports by leading destinations, 1990/91-1997/98 21. U.S. white corn exports by destination, 1990/91-1997/98 22. Hay: Production, harvested acreage, yield, prices received by farmers, and stocks, 1970-98 23. Hay: Average prices received by farmers, United States, by month, 1970/71-1998/99 24. Shipments of grain on the Illinois waterway and the Mississippi River (Locks 11-22), 1981/82-1998/99 25. Weekly average of rail car loadings of grain and soybeans, 1981/82-1998/99 26. Indexes of animal units, 1975/76-1998/99 27. Feed concentrates, number of animal units, and feed per unit, 1976-97 28. Processed feeds: Quantity fed, 1976-97 END_OF_FILE