FEED YEARBOOK May 22, 2000 April 2000 FDS-2000 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-2000, $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 1999/2000 Larger Beginning Stocks Boost Corn Supply in 1999/2000; Domestic Use Record High Sorghum Production and Use Increase Barley Production and Use Decline in 1999/2000 Oats Supplies Down in 199/2000 LDPs Support Feed Grain Farmers' Income Hay Situation and Outlook Hay Production Increases, Prices Decline Feed and Residual Use Feed Demand To Remain Strong Food, Seed, and Industrial Use of Corn Food, Seed, and Industrial Uses of Corn To Increase in 1999/2000 World Coarse Grain Outlook Global Coarse Grain Production Declines While Consumption Increases U.S. Corn Export Slump in 1999/2000 as Competition Increases Special Articles Evolving Patterns of Feed Grain Trade New Census Data Spark Revisions in Estimated Food and Industrial Uses of Feed Grains List of Tables and Figures Situation Coordinator Allen J. Baker (202) 694-5290 Principal Contributors Allen J. Baker (202) 694-5290 Edward W. Allen (202) 694-5288 Jenny R.Gonzales (202) 694-5296 Special Articles Allen J Baker (202) 694-5290 Mathew D. Shane (202) 694-5282 Editor Diane E. Decker Layout, Text Design, and Graphics Wynnice Napper Approved by the World Agricultural Outlook Board April 24, 2000. The Feed Yearbook and the monthly Feed Outlook may be accessed electronically via the ERS web site at www.ers.usda.gov. Summary Total feed grain use is projected at 267.7 million tons in 1999/2000, up 3 percent from the previous year, and second only to the 268.5 million used in 1994/95. Feed grain exports are forecast down 2 percent from 1998/99, led by a drop in corn exports. Domestic use is forecast to rise 4 percent from a year earlier to a record 213 million tons. Feed and residual use of the four feed grains plus wheat is expected to be up from last year. Increased milk, beef, poultry, and egg production is forecast to offset reduced hog numbers and keep feed demand strong. Corn is expected to represent 88 percent of feed and residual use in 1999/2000, up from 85 percent in 1998/99. The grain used per grain consuming animal unit in 1999/2000 is up 4 percent from 1998/99's 1.8 tons. U.S. stocks of corn are projected to decline nearly 2 percent as gains in use outstrip production in 1999/2000. Domestic disappearance is expected to set another record because of low prices and a buoyant economy. However, corn exports are expected to drop because of increased competition from China. Corn prices are projected to be the lowest since 1986/87. According to the March 31 Prospective Plantings report, growers intend to plant 77.9 million acres of corn in 2000, up 1 percent from last year. Food, seed, and industrial (FSI) use of corn is expected to rise 5 percent from a year earlier in 1999/2000. FSI use would represent 20 percent of total corn use, the same as in 1998/99. Corn used for high fructose corn syrup and ethanol will post the largest increases. The Department of Energy reported record ethanol production for September 1999-February 2000. Corn used for ethanol in 1999/2000 is forecast at a record 555 million bushels, up 6 percent from last year. The sorghum supply is up 16 percent from a year earlier in 1999/2000 because of a larger crop and beginning stocks. All uses of sorghum are expected to be up due to lower prices. The largest increase will occur in feed and residual use, which is projected to climb 24 percent to 325 million bushels. Sorghum exports are forecast at 235 million bushels in 1999/2000, up from 197 the year before, largely because of increased shipments to Mexico. The sorghum price is expected to average 84 percent of the corn price, similar to 1998/99, but weaker than the historical relationship of around 92-93 percent. In early March, sorghum growers indicated they intended to plant a record low 9 million acres in 2000, down 3 percent from 1999. Barley supply in 1999/2000 is forecast down 10 percent as larger beginning stocks only partially offset a 20-percent drop in production and lower imports. Total use is down 6 percent because of a drop in feed and residual use. With declines in production, barley prices received by farmers in 1999/2000 have strengthened from a year ago. The spread between malting and feed barley is down only about 1 percent from last year=s 82 cents per bushel, suggesting malting barley supplies are still tighter than in 1997/98 when the spread was 67 cents. On March 1, growers indicated they intended to seed 5.7 million acres for 2000, up 10 percent from the 5.2 million acres seeded a year ago. Oats supplies in 1999/2000 are expected to be down 6 percent from 1998/99. Total use also may be down 6 percent with almost all use categories lower than last year. Prices received by farmers for oats in 1999/2000 are expected to average about the same as in 1998/99. On the first of March, farmers indicated they intended to harvest 2.47 million acres of oats for grain in 2000, up 1 percent from 1999. Hay production in 1999 increased 5 percent from 1998, but stocks on December 1, 1999, were down 3 percent from a year earlier. Hay prices are down in 1999/2000, following declines in 1998/99. Total silage production per roughage consuming animal unit is 1.4 tons, up from 1.3 tons in 1998. Farmers in March indicated they planned to harvest 63 million acres of hay in 2000, down 108,000 acres from 1999. In 1999/2000, world coarse grain production is expected to decline 2 percent. Barley production is expected to fall the most, but output of other coarse grains is also declining. Global supplies are maintained by sharply higher beginning stocks. Foreign production is dropping because of low world prices and adverse weather, particularly in North Africa, the Middle East, and former Soviet Union. Consumption in these drought-stricken areas is expected to be reduced by tight supplies, but in Asia, coarse grain consumption is increasing as the economies of several countries rebound from the financial crisis. World corn trade is expected to expand slowly in 1999/2000, but U.S. corn exports will drop because of increased competition. Increased U.S. sorghum exports will be only partly offsetting. China is expected to emerge as the second largest corn exporter in 1999/2000, reaching 9 million tons, far more than the 3.3 million a year ago. With increased supplies, Argentina=s 1999/2000 corn exports are forecast up 8 percent to 8.5 million tons. Feed Grain Supply and Use Abundant Feed Grains Supplies and Low Prices Spur Larger Use in 1999/2000 Total feed grain disappearance in 1999/2000 is forecast up 3 percent from last year. Domestic use is expected to rise 4 percent. U.S. feed grain production in 1999 is estimated at 263.1 million metric tons, down 3 percent from the year before and down 7 percent from 1994's record 283.2 million. However, beginning stocks of feed grains are up 35 percent from 1998/99 to 51 million tons, leaving 1999/2000 supplies up 2 percent and the highest since 1987/88. Total feed grain disappearance will rise because of increased feed and residual use and larger food, seed, and industrial (FSI) use. Total use is projected at 268 million tons in 1999/2000, up 3 percent from the previous year, and second only to the 268.5 million tons used in 1994/95. Feed grain exports are forecast down 2 percent from 1998/99, led by a drop in corn exports. Exports of the other feed grains will increase. Domestic use is forecast to rise 4 percent from a year earlier to 213 million tons, the largest since the 206 million in 1994/95. Corn's share of total use is expected to equal 90 percent, the same as in 1998/99. Corn accounted for 91 percent of total production in 1999, 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. USDA's Prospective Plantings report for 2000 indicates that plantings of sorghum and oats will be the lowest on record, and barley, while up from last year, 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. Larger Beginning Stocks Boost Corn Supply in 1999/2000; Domestic Use Record High U.S. stocks of corn are projected to decline nearly 2 percent as gains in use outstrip supply in 1999/2000. Domestic disappearance is expected to set another record because of large supplies, low prices, and a buoyant economy. Corn exports are expected to drop because of increased competition from China. Corn prices are projected to be the lowest since 1986/87's $1.50 per bushel. Corn Crop Reaches 9.44 Billion Bushels U.S. corn production in 1999 was 9,437 million bushels, down 3 percent from 1998 but the fourth highest on record. Planted area totaled 77.4 million acres, down 3 percent from the year before. Corn harvested area also declined 3 percent from the 72.6 million acres in 1998. The average yield was 133.8 bushels per acre, down 0.6 bushels from 1998, but surprisingly high given the dry summer in parts of the Corn Belt. Planting proceeded rapidly in 1999 and was 96 percent complete by the end of May, compared with the previous 5-year average of 90 percent. Moisture was favorable for crop development through June, but in July the weather turned dry and hot. In five of the major corn growing States, July weather was drier and hotter than the mean over the 1975-1998 period. In 1999, precipitation was 3.26 inches, down from the 1975-1998 mean of 4.16 inches. Temperature was up 4 percent from the mean of 75.1 degrees. By the beginning of August, 91 percent of the corn acreage was silking in the 17 major corn-producing States, compared with the 5-year average of 78 percent. At that time, the percent of corn rated good to excellent totaled 63 percent, below the 68 percent in 1998. Nationally, crop progress was ahead of average, and dry, frost- free conditions in the fall facilitated an early harvest. As of November 14, 1999, 96 percent of the crop had been harvested, compared with the average of 80 percent. Objective yield data indicated record stalk and ear counts for five of the seven States where these data are collected (Illinois, Indiana, Iowa, Nebraska, and Wisconsin). Stock and ear counts in Minnesota and Ohio were the second and fourth highest, respectively. Stocks To Decline as Increased Use Outstrips Gains in Supply Beginning stocks of corn for 1999/2000 were up 37 percent from a year earlier to 1,787 million bushels. This increase, combined with the smaller crop, raised the total corn supply 1 percent from the year before to 11.2 billion bushels. This is the largest supply since 12 billion bushels in 1987/88. The increase is expected to be outpaced by gains in use, and stocks will drop slightly after growing for 3 straight years. Ending stocks of corn in 1999/2000 are projected to decline nearly 2 percent to 1,759 million bushels. The ratio of stocks to use is projected at 18.6 percent, compared with 19.2 percent in 1998/99 and the low of 5 percent reached in 1995/96, when prices soared to record highs. Total Disappearance Expected To Be Highest Ever Total disappearance of corn is projected at 9,480 million bushels in 1999/2000, up 2 percent from 1998/99. Exports are expected to decline, but domestic use is forecast up 262 million bushels to a record high. Domestic use is expected to reach nearly 7.6 billion bushels, the third consecutive record high, as both feed and residual use and food, seed, and industrial (FSI) use expand. FSI use is forecast to rise 5 percent to a record 1,930 million bushels in 1999/2000, led by gains in ethanol and high fructose corn sweetener. Strong U.S. economic growth and very attractive corn prices for processors underlie the continued expansion in industrial use. Feed and residual use of corn is forecast to rise 3 percent to 5,650 million bushels, also a record, as large animal inventories, particularly cattle on feed and broilers, and low feed grain prices keep feed demand high. Corn Prices Projected To Remain Low The season average farm price of corn in 1999/2000 is forecast at $1.85-1.95 per bushel. The midpoint of this range would be the lowest since $1.50 in 1986/87. Low corn prices in that year were due to record stocks and supplies. Weak prices over the last year 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 and continued downward through the 1998/99 marketing year. Average farm prices hit a low of $1.69 per bushel during harvest in October 1999 and then rose modestly, roughly in line with normal seasonal patterns. Corn prices acquired the normal "summer weather market jitters" in February as futures commodity traders have been anticipating drought in the Corn Belt this summer. April showers are currently dampening drought prospects and futures prices have declined from their earlier highs, but current new-crop futures prices still have a substantial weather premium. End users have benefited from the low prices. The benchmark Central Illinois cash price of corn declined to under $1.70 per bushel in July 1999. During the main harvest period (September- November), prices averaged $1.79, down 16 cents per bushel from 1998. In December 1999-March 2000, Central Illinois prices have averaged $1.98, down from $2.07 a year earlier. Corn Plantings Likely To Increase in 2000 In early March, corn growers indicated they intended to plant 77.9 million acres of corn in 2000, up 1 percent from last year, according to Prospective Plantings. Actual plantings could change because of market conditions and weather effects. In the major corn growing States, only Illinois and Iowa farmers are planning to increase acreage from last year. In the other major States, corn acreage may be less than last year, as farmers shift more acres into soybeans. Growers intend to increase soybean area to another record, with the incentive of an attractive loan rate relative to corn and wheat. Farmers also intend to plant 25 percent of their corn acreage with varieties developed using biotechnology. If these intentions are realized, 18 percent of the U.S. corn acreage will be planted with insect-resistant-only varieties containing bacillus thuringiensis (Bt.). Five percent of the acreage will be planted with herbicide-resistant varieties developed using biotechnology. Stacked gene varieties, those containing both insect and herbicide resistance, will be planted on 2 percent of the corn acreage. Sorghum Production and Use Increase The sorghum supply is up 16 percent from a year earlier in 1999/2000 because of a larger crop and beginning stocks. All uses of sorghum are expected to be up due to lower prices. Sorghum production in 1999 was 595 million bushels, up 14 percent from 1998, reflecting increases in harvested acreage and yields. Harvested acres totaled 8.5 million, up from the drought-reduced 7.7 million in 1998. Acres cut for silage also increased relative to last year . The average U.S. sorghum yield was on trend at 69.7 bushels per acre, up 2.4 bushels from 1998 but not as good as the 72.7 bushels achieved in 1994. In Kansas, the largest sorghum producer, yields were 76 bushels per acre, down from the alltime high of 80 bushels in 1998 and 1992. In Texas, the second largest producing State, yields were 63 bushels per acre, up sharply from 1998, when very poor growing conditions lowered yields to 46 bushels per acre. Sorghum Disappearance Forecast To Increase 22 Percent All uses of sorghum are expected to increase in 1999/2000 because of the increased supply. Total use is forecast at 615 million bushels, up from 504 million in 1998/99. Ending stocks of sorghum are projected at 45 million bushels, down from 65 million in 1998/99 and the lowest in 4 years. The largest increase will occur in feed and residual use, which is projected to climb 24 percent to 325 million bushels. FSI use of sorghum is forecast to increase 10 million bushels to 55 million. Most of this use is for fuel alcohol (ethanol). Exports of sorghum are forecast at 235 million bushels in 1999/2000, up from 197 million the year before, largely because of increased shipments to Mexico. In the first half of the 1999/2000 marketing year, export prices (fob Gulf ports) relative to corn averaged 93 percent of the corn price, down from 95 percent last year. Farm Prices Down Sorghum prices received by farmers are forecast at $1.55-1.65 per bushel in 1999/2000. The sorghum price is expected to average 84 percent of the corn price, similar to 1998/99, but weaker than the historical relationship of around 92-93 percent. Sorghum Acreage Expected To Continue To Slide in 2000 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 adverse weather creates problems for 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. In 1999, sorghum acreage was down in Texas, mainly due to an increase in cotton planted acreage. According to the Prospective Plantings report, growers intend to plant a record low 9 million acres in 2000, down 3 percent from 1999. Of the 24 States that estimate sorghum acreage, 8 States indicated increases, 9 were down, 1 was unchanged, and 6 were reporting for the first time. The largest drop is expected in Texas with a decline of 350,000 acres, while Kansas producers said they would plant 200,000 fewer acres. Nebraska producers indicated the largest increase of 150,000 acres. Much of Texas and Kansas has been dry and if recent rains should replenish soil moisture, additional acres may be planted in these States on grazed-out or failed wheat acreage. While trending up, yield growth has been much more modest for sorghum than for 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 previously would have been considered marginal growing areas because of low moisture or short growing seasons. Barley Production and Use Decline in 1999/2000 Barley supply in 1999/2000 is forecast down 10 percent as larger beginning stocks only partially offset a 20-percent drop in production and lower imports. Total use is down 6 percent because of a drop in feed and residual use. Barley production in 1999 is estimated at 282 million bushels, down from 352 million in 1998 because of lower area and yield. The national yield averaged 59.2 bushels per acre, down slightly from 1998's 60 bushels. Planted acres in 1999 were down 18 percent to 5.2 million, and harvested acres were down 19 percent. North Dakota remained the top barley producing State, followed by Montana, Idaho, Washington, and Colorado. These five States produced over three-fourths of the 1999 barley crop. North Dakota yields decreased 6 bushels from 1998 to 49.0 bushels per acre. The average yield in Idaho is equal to the year-earlier level. Record high yields were achieved in Kentucky, New Jersey, North Carolina, and Pennsylvania. Total Supply and Use Down in 1999/2000 In addition to reduced production in 1999/2000, imports are expected to be down 16 percent from the 30 million bushels imported in 1998/99. Even with a 19-percent increase in beginning stocks, total supplies for 1999/2000 are expected to be down 11 percent from the 501 million bushels in 1998/99. 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 that has boosted local demand for barley. Ending stocks in 1999/2000 are expected to be down 21 percent from the 142 million bushels in 1998/99. Based on quarterly stocks data thus far in the 1999/2000 marketing year, barley feed and residual use may be down 16 percent to 135 million bushels. Exports are expected to be up 5 percent from the 28 million bushels shipped last year. Food, seed, and industrial uses are up 1 percent, reflecting increased population. Barley Prices Increase With declines in production, barley prices received by farmers in 1999/2000 have strengthened from a year ago. In 1998/99, plentiful supplies of feed grains, primarily corn, and weak export demand for all feed grains caused the barley price to drop to $1.98 per bushel, down from $2.38 a year earlier. Through March 2000, feed barley prices received by farmers averaged $1.61, up from $1.55 in June 1998-March 1999. Malting barley prices have been stronger, averaging $2.42 in June 1999-March 2000, versus $2.37 during the same period a year earlier. The spread between malting and feed barley is down only about 1 percent from last year=s 82 cents per bushel, suggesting malting barley supplies are still tighter than in 1997/98 when the spread was 67 cents. Prospective Plantings On March 1, 2000, growers indicated they intended to seed 5.7 million acres for 2000, up 10 percent from the 5.2 million acres seeded a year ago. Montana is decreasing barley seedings by 100,000 acres, or 8 percent. North Dakota and Minnesota are increasing acres by 41 and 35 percent, respectively. Of the 27 States that estimate barley seedings, 8 States are reducing acreage, 12 are increasing acreage, and 4 States are showing no change from 1999. The remaining three States reported seeding intentions for the first time. Oats Supplies Down in 1999/2000 Oats supplies in 1999/2000 are expected to be down 6 percent from 1998/99. Total use also may be down 6 percent with almost all use categories lower than last year. Despite larger beginning stocks, oats supplies in the 1999/2000 marketing year are down from last year because of lower production and imports. Production in 1999 was 146 million bushels, down from 166 million in 1998. Planted acreage, at 4.67 million acres, was down nearly 5 percent from 1998, and harvested acreage was down 11 percent to 2.5 million acres. This is the lowest production since records were first kept in 1866. Hot, dry weather during July 1999 promoted rapid crop development in the Corn Belt, and limited the crop=s potential but did not seriously affect yields. In the mid-Atlantic States and Northeast, early season development was aided by adequate moisture supplies and warm weather, but a midseason drought reduced yields. Some fields were cut to supplement forage supplies in Pennsylvania and New York. 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 for other crops. Oats are not likely to challenge corn for more acreage because of their low yield per acre and low price. In 1999, average oats yields were 59.6 bushels per acre, while corn yields were 133.8 bushels per acre. Gross returns per acre of oats in 1999 will likely be around $65, in contrast to corn=s gross returns of $248- $261. Variable cash expenses are much higher for corn than oats, but in 1998 the value of production less operating costs were $108.57 per acre for corn, compared with $21.74 for oats. (See the ERS Cost and Returns Briefing Room at http://www.ers.usda.gov/briefing/fbe/car/car.htm.) Oats Imports Weaken Oats supplies in 1999/2000 are expected to be reduced by a decrease in imports. Imports in 1999/2000 are expected to total 100 million bushels, down from 108 million in 1998/99. The United States imports oats primarily from Canada, with lesser amounts from Finland and Sweden. 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 1999/2000. Total use of oats in 1999/2000 may equal 250 million bushels, down 16 million from a year earlier, and near the use of 1996/97. Ending stocks are forecast down 5 percent from the 81 million in 1998/99. Food use is expected to remain near the 1998/99 level. Feed and residual use in 1999/2000 is expected to be down 8 percent from the 196 million bushels used in 1998/99. Prices the Same as Last Year Prices received by farmers for oats in 1999/2000 are expected to average about $1.10 per bushel, the same as in 1998/99. Average prices from June 1999 through March 2000 were $1.14, compared with $1.16 during the same period last year. Prospective Plantings On March 1, farmers indicated they intended to harvest for grain 2.47 million acres in 2000, up 1 percent from 1999. These acres are slightly above last year=s record low 2.45 million acres. North Dakota farmers reported intentions to harvest for grain more oats than any other State, followed by Minnesota and Wisconsin. LDPs Support Feed Grain Farmers' Income For the 1999/2000 corn crop, producers are forecast to receive $2.1 billion in loan deficiency payments and marketing loan gains, in addition to their Production Flexibility Contract payments and supplemental payments. Loan deficiency payments and marketing loan gains are expected to total $163 million for sorghum, $38 million for barley, and $28 million for oats. The 1996 Farm Act contained key policy tools to assist farmers when market prices are low. The key provisions are the "nonrecourse marketing assistance loans" and "loan deficiency payments" (LDPs). Producers that entered into Production Flexibility Contracts with USDA are eligible to participate in these programs. For the 1996-2002 crops, producers who participate in the Production Flexibility Contract (PFC) program receive PFC payments that 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. The program yield for 1999/2000 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 of 82.1 million acres was enrolled. Payment bushels on the 1999/2000 crop total about 7.2 billion bushels, or the equivalent of 76 percent of 1999 corn production. The PFC payment rate for the 1999/2000 crop was about $0.363 per bushel. In 1999, with grain prices especially low, an additional payment was made to PFC contract holders equal to their regular PFC payments. The nonrecourse marketing assistance loans provide interim financing to eligible producers of feed grains and other commodities covered by the program. Producers pledge their feed grains as collateral and obtain a loan equivalent to the loan rate established in their county by the Farm Service Agency of USDA. The loan proceeds can cover short term cash needs. As of April 24, 2000, feed grain producers had outstanding loans on 919 million bushels of 1999-crop feed grains. The value of the outstanding loans totaled $1.7 billion, yielding an average loan value of $1.82 per bushel for corn, $1.73 per bushel for sorghum, $1.67 for barley, and $1.10 for oats. The loans may be forfeited to the Commodity Credit Corporation at maturity or repaid at the loan repayment rate at or before maturity. The loan repayment rate may actually be less than the loan rate (plus interest) if the local price--called the posted county price (PCP)--falls below the local loan rate. The PCP-- calculated each day the Federal Government is open--is based on terminal market prices and a fixed differential to each county, largely reflecting transportation and other marketing factors. When a farmer repays the loan at a lower PCP, the difference between the loan rate and the PCP is called a "marketing loan gain." If the PCP is under the county loan rate on the day the producer repays the loan, accrued interest on the loan is waived. If the PCP is below the county loan rate, eligible producers may opt for an LDP in lieu of securing a loan. The LDP rate is the amount by which the county loan rate exceeds the PCP on the date the application is made. Feed grains cannot be placed under loan once an LDP is paid. If producers take the LDPs and immediately sell their crop and if the PCP accurately reflects local prices, they effectively receive a per-unit revenue equal to the loan rate, partly from the market and partly from the government. After an LDP is accepted, the farmer can sell the crop and avoid storage expense or hold it in the expectation of a price rally later in the marketing season. For the 1999/2000 corn crop, producers have already received over $2,042 million in LDPs and marketing loan gains (MLGs), and these payments are likely to exceed $2,1 billion for the crop year. Thus, average gross returns per bushel for corn in 1999/2000, including market returns, PFC payments, supplemental PFC payments, LDPs and MLGs, is expected to total about $2.66 per bushel. Sorghum producers have received $149 million in LDPs and MLGs and are forecast to receive over $163 million. Average per bushel returns for sorghum, including all government payments, may total $2.81. LDPs and MLGs for barley and oats are forecast to total $38 million and $28 million respectively. Average prices with government payments included are about $3.10 per bushel for barley and $1.40 for oats. Hay Situation and Outlook Hay Production Increases, Prices Decline Hay production in 1999 increased 5 percent from 1998, but stocks on December 1, 1999, were down 3 percent from a year earlier. Hay prices are down in 1999/2000, following declines in 1998/99. Stocks of all hay on farms on December 1, 1999, were down 3 percent from 1998's revised 112 million tons. Stocks declined in 29 of the 48 contiguous States. Dry weather conditions in the Mid-Atlantic and Midwestern States played a major role. California, Delaware, Idaho, Illinois, Indiana, Kansas, Kentucky, Maryland, Ohio, Pennsylvania, and Tennessee had stock declines of 15 percent or more. Oklahoma and Texas had the largest stock increases, up 38 and 20 percent, respectively, from December 1998. Oklahoma hay stocks were 4.2 million tons, up 6 percent from the average in 1993-97. However, in Texas, December 1, 1999, hay stocks were down 9 percent from the 7.2-million-ton average for 1993-1997. Roughage consuming animal units (RCAUs) in 1999/2000 are estimated to be down 2 percent from 1998/99. Hay stocks on farms on December 1, 1999, were 1.5 tons per RCAU, the same as the year earlier. Hay production in 1999 totaled 159 million tons, up 5 percent from the revised 1998 total. Acreage of all hay was up 5 percent from the 60 million acres harvested in 1998, but yields were down slightly at 2.52 tons per acre. Texas regained its number one spot for hay production with 13.1 million tons, followed by South Dakota, California, and Nebraska. Production of alfalfa and alfalfa hay mixtures in 1999 was up 2 percent from 1998's 82 million tons. Acreage was up 1 percent, and yields were up nearly 1 percent from 1998's 3.48 tons per acre. Acres seeded to alfalfa and alfalfa mixtures were down 3 percent from the 3.5 million seeded in 1998. Newly seeded acres of alfalfa and alfalfa mixtures are normally harvested for dry hay for the first time in the year following planting. The newly seeded acres in 1998 account for 15 percent of the acres of alfalfa and alfalfa mixtures harvested for dry hay in 1999. Other hay production was up 8 percent from 1998's revised 69 million tons. In 1999, the area harvested of other hay was 39 million acres, up 8 percent from 1998. Average yields were 1.92 tons per acre, up from 1.91 tons in 1998. Texas was the leading producer and Missouri was second, whereas Texas and Missouri tied as the leading producers in 1998. Corn for silage in 1999 was up 1 percent from the revised 95 million tons produced in 1998 to 96.2 million. Acreage was up nearly 3 percent and yields were down 1 percent. Sorghum for silage totaled 3.7 million tons, up 5 percent from 1998. Acreage was up 4 percent from the year earlier, and yields were up 2 percent from the 11.4 tons per acre in 1998. Total silage production per roughage consuming animal unit is 1.4 tons, up from 1.3 tons in 1998. All hay prices received by farmers during May 1999-March 2000 averaged $77 per ton, down from $85 in May 1998-March 1999. In the 1998/99 hay marketing year, prices received by farmers for all hay weighted by marketings were $87 per ton, down from a record high of $100 in 1997/98. Alfalfa hay prices received by farmers in 1999/2000 are expected to be down from 1998/99. In the first 11 months of the 1999/2000 marketing year, alfalfa hay prices averaged $80 per ton, down 10 percent from the simple average of $88 for the same months in 1998/99. In the 1998/99 marketing year, the weighted average for alfalfa hay prices was $91 per ton, up from $107 in 1997/98. Hay other than alfalfa in 1998/99 had a weighted average price of $73.50 per ton, down from $75.70 in 1997/98. In the 1999/2000 marketing year, prices received by farmers are likely to be down again. In the first 11 months, the simple average price was down 9 percent from the same months in 1998/99. Prospective Harvested Acreage Farmers in March indicated they planned to harvest 63 million acres of hay in 2000, down 108,000 from 1999. While Texas, traditionally the largest planter, is once again expected to have the largest harvested area, prospective acres are down 2 percent from 1999. Overall, producers in 24 States expect to harvest hay from more acres than last year. Acreage reductions are expected in 15 States, while growers in 9 States intend to harvest the same number of acres as in 1999. The States with increased expectations are mostly in the East, where last year's dry conditions reduced hay stocks. In New York the acres of all hay harvested are expected to increase by 300,000 acres or 20 percent. South Carolina is expecting a 30,000-acre increase or 10 percent. All the other States are within less than 10 percent of 1999 harvested acres. Feed and Residual Use Feed Demand To Remain Strong Feed and residual use is expected to be up from last year. Increased milk, beef, poultry, and egg production is forecast to offset reduced hog numbers and keep feed demand strong. Feed and residual use of the four feed grains plus wheat in 1999/2000 is expected to be up 6 percent from the 159 million metric tons used in September 1998-August 1999. Corn is expected to represent 88 percent of feed and residual use in 1999/2000, up from 85 percent in 1998/99. The index of grain consuming animal units (GCAUs) for 1999/2000 is expected to be up 2 percent from 1998/99's 89 million. The grain used per grain consuming animal unit in 1999/2000 is up 4 percent from 1998/99's 1.8 tons. In the index components, GCAUs for dairy cows, cattle on feed, broilers, turkeys, and layers are up from the previous year. Dairy cows on January 1, 2000, totaled 9.2 million head, up 1 percent from 1999. Dairy cow numbers are expected to decline as the year progresses, however, because of current weak milk prices. But with increased production per cow, milk production in 1999/2000 is expected to total 167.1 billion pounds, up from 161.2 billion in 1998/99. Thus, with the increased milk production per cow, feed use by the dairy industry will continue strong. The number of cattle on feed on January 1, 2000, totaled 14 million head, up from 13 million the previous year. Compared with a year earlier, the calf crop was the same as in the first half of 1998, but down 1 percent in the second half. Feeder cattle supplies outside feedlots were down 5 percent on January 1. Cattle on feed on April 1 were up 8 percent but placements during March were down 1 percent from a year earlier. Feeder cattle supplies outside feedlots on April 1 were down nearly 8 percent from a year earlier. Thus, placements of cattle on feed in 2000 are likely to be down from 1999 and feed needs in the second half of the calendar year would be less. Broiler, turkey, and egg production in 2000 are expected to increase from 1999 levels and maintain strong demand for feed grains. Broiler production in 2000 is expected to increase 5 percent from 1999 as producers respond to strong domestic and foreign demand. Cumulative placements (an indication of future flock size) in the broiler hatchery supply flocks have been increasing in 2000 and by next fall, cumulative placements will be 1 percent higher than in 1999. Egg producers are expected to produce 7.1 billion dozen eggs in 2000, up 2 percent from 1999. Egg prices were 13 percent lower in 1999 than in 1998, but lower grain prices have encouraged producers to continue increasing production. In 2000, turkey production is forecast at 5.4 billion pounds, up from 5.3 billion in 1999. Pork production in 2000 is expected to be down 2 percent from the 19 billion pounds produced in 1999. 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 2000 by 4 percent relative to the prior year, and in June-August 2000 by 2 percent. Offsetting part of the reduced farrowings has been a 1- percent increase in pigs per litter in June-November 1999 and most recently in December 1999-February 2000. The forecast decline in pork production suggests feed needs for the pork sector will be weaker in 1999/2000. Food, Seed, and Industrial Use of Corn Food, Seed, and Industrial Uses of Corn To Increase in 1999/2000 Food, seed, and industrial (FSI) use of corn is expected to rise 5 percent from a year earlier in 1999/2000. Corn used for high fructose corn syrup and ethanol will post the largest increases. Corn FSI use in 1999/2000 is expected to total 1,930 million bushels, up from 1,846 million in 1998/99. FSI use would represent 20 percent of total corn use, the same as in 1998/99 and 1997/98. Corn use in 1999/2000 is expected to be up for all categories of use. Corn used for high fructose corn syrup (HFCS) production in 1999/2000 may total 565 million bushels, up 7 percent from 1998/99. (See special article detailing the historical revisions in food and industrial uses of corn.) HFCS is primarily used in soft drinks, for which sales have expanded as companies add more soft drink machines. Mexico continues as an important customer for HFCS. In 1999/2000, corn used to make glucose and dextrose is forecast to increase 3 percent from the 219 million bushels used in 1998/99, which were down 4 percent from the year before. Over the past 2 years, many bakery producers have been reformulating their low-fat products. In the process, they have likely cut the use of corn sweeteners, which may have caused the slowing in glucose and dextrose production. Glucose and dextrose producers have found new uses, because in the first 6 months of the 1999/2000 corn marketing year, corn used in the production of glucose and dextrose was up 1 percent from the same period in 1998/99. In 1999/2000, corn used in starch production is expected to be up 4 percent from the 240 million bushels used in 1998/99, about the same as the gains shown in the first half of the marketing year. Starch use normally increases when the economy is strong because starch is used in a myriad of products, including wallboard and paper. Corn used to make ethanol for all of 1999/2000 is estimated to be up 6 percent from the 526 million bushels used in 1998/99. Monthly ethanol production reported by the Department of Energy was a record in September 1999-February 2000. However, due to the larger use of sorghum, corn slightly trailed the 1994/95 record 273 million bushels to total 270 million bushels, up from 265 million in the same period a year earlier. This ethanol 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 and ethanol stocks are large. 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 by the Environmental Protection Agency to ban MTBE. California has asked for a waiver to end the mandatory 2-percent oxygen requirement 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, some gasoline refiners claim that if oxygenates were not mandated by the Clean Air Act, Aclean burning@ gasoline could be produced and eliminate the need for oxygenates. Beverage and manufacturing alcohol production in 1999/2000 is expected to use 130 million bushels of corn, up 2 percent from the estimated 127 million bushels used in 1998/99. The strong economy and a growth in tax receipts by the Bureau of Alcohol, Tobacco, and Firearms suggests beverage alcohol production has increased. World Coarse Grain Outlook Global Coarse Grain Production Declines While Consumption Increases In 1999/2000, world coarse grain production is expected to decline 2 percent. Barley production is expected to fall the most, but output of other coarse grains is also declining. Global supplies are maintained by sharply higher beginning stocks. Foreign production is dropping because of low world prices and adverse weather, particularly in North Africa, the Middle East, and former Soviet Union. Consumption in these drought-stricken areas is expected to be reduced by tight supplies, but in Asia, coarse grain consumption is increasing as economic growth in several countries rebounds from the financial crisis. Foreign Coarse Grain Production Declines Foreign coarse grain production in 1999/2000 is forecast to decline 2 percent, a drop of 10 million tons. Meanwhile, U.S. coarse grain production is estimated down 8 million tons, contributing to the global reduction. The largest foreign drop is in China, with a reduction of 6 million tons. Area was the highest in two decades because the government supported corn prices above world levels, but the record yields of a year earlier were not matched because of hot, dry weather in some parts of the North China Plain. Still, forecast production is the third largest on record, and huge stocks make supplies abundant. Coarse grain production in India is estimated down 3 million tons despite a small increase in area, because of an early end to monsoon rains in some regions. Corn area increased to meet rising demand for livestock feed, but traditional coarse grains for human consumption continued a long term decline. In the EU coarse grain production dropped almost 3 million tons, because a decline in area more than offset record yields. Barley acres declined 5 percent, as producers reduced area because wheat was more profitable. The barley production drop was partly offset by corn, where record yields boosted the crop 2 million tons. The Middle East was devastated by drought and coarse grain production dropped almost 3 million tons, or 16 percent. Drought reached from Israel and Syria through Iran, and even affected southern Turkey. Low prices discouraged planting of coarse grains in Australia, dropping forecast production 2 million tons. Barley and sorghum yields increased with mostly favorable growing conditions, but the sharply lower area kept production down. In the former Soviet Union, where coarse grain production plummeted 31 million tons the previous year, a second year of drought in Russia and Ukraine limited the rebound to just over 2 million tons. Summer drought reduced Ukraine's corn yield and production from the previous year's low level. However, favorable growing conditions in Kazakstan and some spring grain regions of Russia boosted barley production enough for a small rebound in coarse grain production in both countries. In Eastern Europe coarse grain production also managed only a small rebound from the drop a year earlier. Increased corn production in Romania and Hungary was mostly offset by declines in the former Yugoslavia and reduced barley production. Argentina=s 1999/2000 coarse grain production, mostly corn and sorghum, is forecast up 2 million tons, as area increased 14 percent. Corn prices were more attractive than soybean prices. Corn yields declined from the previous year because drought- reduced yields in some eastern areas were only partly offset by exceptionally good yields to the west. In South Africa, increased corn prices boosted coarse grain area 10 percent, and mostly favorable growing conditions boosted production more than 2 million tons, a rebound from the previous year=s drought. World corn production in 1999/2000 is forecast down less than 1 percent, but foreign production is up 1 percent as reduced production in China is more than offset by increases in South Africa, Eastern Europe, Argentina, and the EU. Global barley production is expected to drop more than 6 percent to 128 million tons, the lowest since 1970. Area is lower than any year in USDA=s data base going back to 1960. Production declines are largest for the EU, Middle East, Australia, Eastern Europe, and North Africa. Low prices and poor returns compared with alternative crops reduced area in some countries, but bad weather was the main factor in many others. World sorghum production is forecast nearly unchanged at 59 million tons, as increased U.S. production is offset by reduced production in India and Sudan. Global oats production is expected to drop 5 percent in 1999/2000 to 25 million tons, mostly because of reduced production in Australia, Canada, the United States, and former Soviet Union. There is a strong declining trend in world oats production because alternative crops can be grown more profitably. World rye production is forecast down slightly, as reduced output in the EU and Eastern Europe offsets a rebound in the former Soviet Union. Large Beginning Stocks Maintain Ample Supplies in 1999/2000 Despite an 18-million-ton drop in production, global coarse grain supplies in 1999/2000 are forecast up slightly from the previous year because beginning stocks are up an estimated 19 million tons. The increase is in U.S. corn stocks, which were up 12 million tons, and in China's corn stocks, up an estimated 13 million tons. So even though there was some decline in world corn production in 1999/2000, corn supplies increased. In contrast, global 1999/2000 beginning stocks of barley were down 10 percent. Since the world production drop was the largest for barley, barley supplies tightened dramatically. World Coarse Grain Consumption Expected To Grow Slowly in 1999/2000 Global coarse grain consumption is forecast up 1 percent in 1999/2000 with most of the increase in the United States. Foreign coarse grain consumption is forecast up slightly, around 2 million tons, or only 0.4 percent. Despite a significant recovery from the weak economic performance associated with the Asian financial crisis, several countries continue to have problems, especially Japan, the world's largest meat importer. Foreign feed use of coarse grains is expected to increase a scant 2 million tons to 427 million in 1999/2000, while non-feed use increases slightly to 241 million. The largest drop in consumption is expected to occur in the former Soviet Union, where low grain stocks, continued production problems, and limited financial means have caused a continued liquidation of animals, dropping forecast coarse grain use more than 4 million tons in 1999/2000. In Eastern Europe, reduced stocks offset a small increase in production, and consumption is expected to decline almost 2 million tons, mostly in the former Yugoslavia. Sharply reduced production in the Middle East is expected to be only partly offset by increased imports, dropping forecast consumption in the region by almost 2 million tons. EU coarse grain use is expected to remain stagnant because most of the increase in grain feed will be wheat. The declines in some foreign countries' 1999/2000 coarse grain use are offset by increases elsewhere. In Asia, coarse grain use in China and South Korea is expected to rebound as expanding economic growth stimulates demand for feed use. The impact of foot and mouth disease problems in South Korea and Japan are not known. But based on what is known as of mid-April, the disease is not expected to affect a large enough number of animals to significantly affect coarse grain consumption. In Latin America, a continued fairly robust increase in Mexico's coarse grain use is coupled with a small increase in most of the rest of the region. While foreign coarse grain consumption is forecast up slightly, foreign corn consumption is forecast up 13 million tons in 1999/2000, an increase of over 3 percent. Foreign barley consumption is expected to drop 6 million tons, as barley prices have increased dramatically compared with corn prices and tight supplies in the Middle East and former Soviet Union constrain use. Foreign sorghum consumption is forecast nearly unchanged in 1999/2000 with increased consumption in Mexico offset by small declines elsewhere. Foreign oats and rye consumption are down slightly following a long term trend. World Coarse Grain Stocks To Drop in 1999/2000 Declining world coarse grain production and a modest rise in consumption are reducing forecast ending stocks for the first time in 4 years. Moreover, the stocks decline is expected to occur across most major producing and consuming countries, and each of the five major coarse grains is expected to share in the decline. However, global feed grain prices are heavily influenced by the world's largest corn exporter, the United States, and U.S. corn ending stocks are expected to decline only 2 percent, and remain the third highest in the last 10 years. Large and only slightly declining corn stocks in the United States and China are expected to limit potential price increases. Global barley stocks are forecast down 19 percent to 23 million tons, about the same as in 1996/97. In the EU, the world's largest barley exporter, ending stocks are forecast at 12 million tons, down from the previous year, but still about double the level in 1995/96 and 1996/97. Internationally traded feed barley prices have increased dramatically this year and barley now sells at a premium to corn rather than at a steep discount. Feed barley reportedly is especially well suited for feeding sheep and camels, so as drought struck the Middle East, strong demand boosted barley prices. World Coarse Grain Trade Increasing Modestly in 1999/2000 World coarse grain trade is forecast at 98 million tons in 1999/2000, up 2 percent from the previous year, and the highest in 10 years, but remains almost 10 percent below the 1980/81 record. The largest increases are expected in South Korea, Iran, and Brazil, more than offsetting declines in Japan, the EU, and Venezuela. South Korea's economy has rebounded from the Asian financial crisis and demand for meat has recovered. Until hoof and mouth disease disrupted trade, pork exports to Japan were also contributing to strong import demand for feed grains. Iran, after suffering from drought, increased barley imports to maintain sheep, goat, and camel herds and increased corn imports to feed poultry. Brazil's corn consumption has begun to increase after declining for 2 years, and with stagnant production, imports are increasing. Most of the increase in world coarse grain trade in 1999/2000 is expected in corn and sorghum, although there is also a small increase for oats and rye. World barley trade is forecast nearly unchanged from the previous year at 17 million tons, a fairly robust level by historical standards. Global corn trade is forecast up less than 2 percent, while sorghum trade is expected to increase 9 percent to the highest level since 1992/93 (excluding intra-EU trade), as Mexico increases sorghum imports and reduces corn imports. U.S. Corn Exports Slump in 1999/2000 as Competition Increases World corn trade is expected to expand slowly in 1999/2000, but U.S. corn exports will drop because of increased competition. Increased U.S. sorghum exports will be only partly offsetting. 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 the 1999/2000 (September/August) marketing year were up 5 percent from a year earlier, and were even up 2 percent compared with 1996/97. The comparison with 1996/97 is revealing because U.S. corn exports for all of 1999/2000 are forecast at 46.5 million tons, about the same as the 46.6 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, as of the end of March, outstanding sales were 7.2 million tons compared with 6.0 million in 1996/97. However, U.S. corn shipments during the last 5 months of 1999/2000 are expected to suffer from very aggressive marketings by China, whose exports are forecast to nearly triple from a year ago. Also hurting U.S. prospects are larger exports from Argentina and South Africa, Southern Hemisphere countries whose crops become available for export late in the marketing year. The destination with the largest drop in U.S. sales from last year is South Korea, with commitments down 30 percent. Increased competition from China has cut U.S. exports despite an increase in South Korea's imports. U.S. commitments to South Korea are down even more compared with 1996/97. U.S. corn export commitments are also down to Latin America. Mexico is the largest destination, and corn export commitments there are down 14 percent from a year ago. Mexico has a large corn crop and has been slow to open additional corn import quotas, prompting feed grain importers to buy sorghum instead of corn. Venezuela has also reduced U.S. corn imports sharply as its total imports decline and the U.S. share drops. Increased competition from Argentina explains some of the decline in U.S. exports to the region. These reductions more than offset increased U.S. shipments to Colombia and the Dominican Republic. Japan remains the largest importer of U.S. corn, but imports are forecast down slightly in 1999/2000. 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 and more recently South Korea, because of disease problems, gives Japanese producers some respite. U.S. corn export commitments to Taiwan are up significantly from last year. Taiwan's hog numbers have begun to stabilize after liquidation caused by hoof and mouth disease, but corn imports remain below the pre-disease levels. U.S. exports to Malaysia and Indonesia are insignificant because of competition from China. U.S. corn export commitments are up sharply to North Africa and the Middle East, with Egypt, Algeria, Iran, 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. Moreover, drought across much of the region has boosted the need to import U.S. corn. An opening in trade relations with Iran has led to shipments of over 0.6 million tons during the first part of 1999/2000. U.S. corn shipments to the EU (Spain) continue to decline because of the controversy related to biotech corn. Spanish and Portuguese importers have chosen to import from other countries, such as Argentina and parts of Eastern Europe, that do not grow unapproved GMO corn varieties. Major Competitors Boosting Exports, U.S. Shipments To Falter World corn trade in 1999/2000 is forecast to expand, reaching the highest level in the last decade. However, U.S. 1999/2000 corn exports are expected to drop because of increased competition. U.S. market share is expected to decline. Importers are increasing purchases and generating a small increase (2 percent) in corn trade. However, sluggish or negative income growth is limiting consumer demand for meat, especially in some Asian and Latin American countries. Although global corn consumption has increased significantly over the last two decades, foreign production has also increased, causing world corn trade to grow slowly. China is expected to emerge as the second largest corn exporter in 1999/2000, reaching 9 million tons, far more than the 3.3 million a year ago. 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 did not begin selling corn aggressively in 1998/99. However, in the latter half of 1998/99 and even more so in 1999/2000, when the world corn price rallied, China reportedly made large sales. Under agreements negotiated for entry into the WTO, China will not be able to subsidize corn exports. With burdensome stocks, China appears to be increasing subsidized corn exports before entry. Producers in Argentina planted 19 percent more corn area, boosting corn production 2 million tons to 15.5 million, despite a decline in average yields. With increased supplies, Argentina's 1999/2000 corn exports are forecast up 8 percent to 8.5 million tons. Although up from last year, this is 4.3 million tons less than Argentina exported in 1997/98. Production remains well below record levels and increased domestic use is limiting exports. However, the increased exports will boost Argentina's market share. South Africa's corn production has rebounded from last year's drought in the maize triangle, and exports are expected to be up from the previous 2 years. At 1.5 million tons, South Africa's exports will be competitive in some markets outside of Africa. Corn exports by Eastern Europe are also expected to increase some as production in the region rose more than 2 million tons, but supplies competitively priced for export are limited. U.S. Sorghum Exports To Increase in 1999/2000 U.S. sorghum exports are forecast to reach 5.8 million tons, up 12 percent from a year earlier, and the largest since 1992/93. Increased U.S. production and supplies have maintained some price discounts for sorghum compared with corn. Mexico has a large corn crop and has been slow to open additional corn import quotas, prompting feed grain importers in Mexico to buy sorghum instead of corn. Mexico is expected to import 4 million tons in 1999/2000, the most in 7 years. Strong Mexican buying has limited price discounts for sorghum compared with corn, and Japan has responded by reducing its sorghum purchases. Argentina, Australia, and Sudan are expected to maintain sorghum exports. However, the United States is still expected to increase sorghum market share to account for almost 85 percent of world trade. U.S. barley exports and imports in 1999/2000 are forecast down slightly from a year earlier, and imports are forecast slightly larger than exports. Traditionally Japan is the major importer of U.S. barley, and there the U.S. share is limited by Canada and Australia. The long term decline in U.S. barley exports, highlighted by the historically low October/September forecast, is exacerbated by a declining trend in U.S. area and production. Special Article Evolving Patterns of Feed Grain Trade Mathew D. Shane 1/ Abstract: As the dominant exporter of feed grains, the United States is more affected than other exporters by changing patterns of global trade. Growth in demand for feed grains and other bulk exports has remained flat over time, and bulk agricultural exports have declined relative to exports of processed agricultural products. Export volumes of U.S. feed grains have fluctuated substantially, but their underlying trend has remained near 55 million tons. Export prices for U.S. feed grains (in 1995 dollars) have declined from the high of $226 a ton in 1975 to $54 a ton in 1999. Feed grain markets have shifted from Europe to Asia as income growth has transformed Asian diets toward meats and poultry. Productivity growth in U.S. agriculture has allowed U.S. farmers to produce feed grains competitively and maintain an approximate world market share of 50 percent. Keywords: Feed grain trade, U.S. exports, Asian markets, patterns of trade 1/ The author is Senior Economist in the Market and Trade Economics Division, Economic Research Service. The United States has been the dominant exporter of feed grains for the past 37 years, accounting for approximately 50 percent of world exports, on average. Feed grains are an important component of U.S. agricultural exports, but they have declined from almost 14 percent of the value of agricultural exports in 1962 (and peaks of 23 percent in 1976 and 21 percent in 1980) to about 9 percent in 1999. 2/ The decline is part of an overall decline in the share of total agricultural exports held by bulk products and reflects rising demand for processed products as incomes increase around the world. 2/ The data used for this paper are drawn from the FATUS database on U.S. agricultural trade, and are available on the ERS website: www.ers.usda.gov. In general, calendar year data are used. Data for world trade are drawn from the UN Comtrade database and include intra-EU trade. A drop in real export unit values primarily caused the decline in value. 3/ Thus, the value of feed grain exports in nominal dollars has fallen more than the quantity. From the 1980 peak to 1999, U.S. feed grain exports have fallen from $9.8 billion to $5.5 billion in value and from 73 million tons to 58 million tons in volume. The nominal unit value has declined from a high of $145 a ton in 1962 to $95 in 1999. 3/ The real unit value is the current value of exports divided by the quantity of exports adjusted for changes in overall prices as measured by the GDP deflator. Feed Grain Trade in a Global Context U.S. feed grain exports are part of an evolving pattern of global agricultural and merchandise trade. An increasing part of world agricultural trade involves high value and processed agricultural products (fig. A-1). The biggest shift is the substitution of processed products for bulk products. In 1962, more than 40 percent of world agricultural trade was bulk products such as grains, oilseeds, cotton, and unprocessed tobacco. Processed products accounted for less than 20 percent of agricultural trade. By 1998, these proportions had completely reversed, with bulk commodities accounting for less than 20 percent and processed products accounting for more than 40 percent. Intermediate and horticultural products maintained their relative importance rather than growing or declining in importance. The transformation of agricultural trade from bulk to processed products is the consequence of several factors. The growth in real world per capita income (in 1995 dollars), from an average of $2,851 in 1962 to $5,696 in 1999, has led to increased demand for processed over bulk commodities from households around the world. Furthermore, improved transportation, declining shipping costs, and improved communication, along with reduced regulatory barriers to processed agricultural trade have provided both a cost advantage and stimulated demand for more processed commodity trade. The United States has a comparative advantage in bulk production and exports, but the overriding global trends have affected U.S. agricultural trade as well (fig. A-2). From more than 60 percent of U.S. agricultural exports in 1962, bulk exports fell to below 40 percent by 1998. Bulk export volumes have not declined, but exports of processed products have grown faster. While the composition of world trade in agricultural exports has changed gradually since 1960, the change in U.S. export composition has mostly occurred since 1985. The increased importance of processed product trade does not necessarily imply that less primary agricultural products are being used for export. Rather, the form of the exports has changed. For example, about 10 million metric tons of corn were used in exported animal products in 1998/99. One can think of meat exports as processed grains. Improved transportation, refrigeration, and handling of meat products have allowed feed grains to be exported more efficiently in a higher value product. Grains represent about half the value of bulk exports and feed grains comprise about half of grain trade (fig. A-3). Over time feed grains have become a more important part of grain trade. Rising incomes have generated increased demand for meats as part of the diet. This has led to increased livestock production around the world, raising demand for feed grains. Sources and Destinations of Feed Grain Trade The United States has been and continues to be the dominant supplier of world feed grains, primarily corn (fig. A-4). Other feed grains--oats, barley, and sorghum--make up less than 10 percent of U.S. exports. Although the U.S. share of world feed grain trade has fluctuated significantly since 1962, there is no observable trend in the data. Part of the reason for the fluctuations has been China's move from an exporter to an importer and back again to an exporter. The decline in the U.S. share in the last several years could be partially due to the Asian crisis. Asian markets have become increasingly important to the United States and the financial constraints operating in several of those countries, including Korea and Japan, hurt U.S. feed grain exports more than some other countries' exports to other destinations. With the Asian financial crisis waning, Asian feed grain demand is expected to resume. After the United States, the EU is the second largest feed grain exporter. Intra-EU trade accounts for about 80 percent of EU feed grain exports. The concentration of European feed grain exports is a direct result of the Common Agricultural Policy (CAP), which has provided significant barriers to imports into the EU, while removing all barriers to trade between EU countries. The diversion of trade by the CAP is one of the most prominent features of agricultural trade of the past 37 years. One of the most dramatic changes in agricultural trade has been in the destinations of U.S. grain exports (fig. A-5). More than 70 percent of U.S. feed grain exports went to Europe in 1962. By 1999, less than 1 percent went to Europe. In the meantime, Asia and Latin America emerged as important markets for U.S. feed grains, expanding to nearly 90 percent from 15 percent in 1962. The East Asian countries of Korea, Taiwan, and Japan are now the most important markets, taking more than 50 percent of U.S. sales. Mexico has also emerged as a very important market, accounting for more than 25 percent of feed grain sales to Latin America. The shift in feed grain markets represents one example of the dynamic transformation of the global economy. The rapid growth of the Asian economies since the 1960's has contributed to increasing Asian demands for meat and meat products. An interesting, but smaller part of the feed grain story is what happened to U.S. feed grain exports to the former Soviet Union (FSU). Before 1972 and after 1992, the United States exported virtually no feed grains to the FSU. However, between 1972 and 1992, the FSU accounted for between 10 and 25 percent of U.S. overseas sales. During those years, economic misallocation and inefficiencies characterized the FSU, and its large agricultural imports were as much a symptom of the artificially low food prices under the Communist system as a measure of underlying demand for feed imports. With the demise of the Communist system in the early 1990's, the FSU's import demand for feed grains evaporated as fast as it began. Trends in Feed Grain Prices, Values, and Quantities The overall trends in feed grain export values mask the divergent paths taken by real unit values and export volume (fig. A-6). The real price of feed grain exports has declined substantially, leading to declines in the real value of exports. U.S. feed grain exports totaled slightly more than 50 million metric tons in 1962 and were slightly under 60 million metric tons in 1999. The real price of U.S. feed grain exports (in 1996 dollars) declined from a high of $226 per ton in 1975 to a low of $54 in 1999. Even in nominal terms, the export unit value of feed grains declined from $121 a ton in 1975 to $95 in 1999. Relatively little growth in export volume and declining real unit values caused the overall real value of U.S. feed grain exports to decline substantially. Conclusion Feed grains continue to be an important agricultural export for the United States. With approximately 50 percent of world feed grain exports, the United States is particularly sensitive to evolving trends in agricultural trade that favor processed products over bulk commodities. The quantity of feed grain exports has been relatively stagnant, showing no real trend over time, but the destinations for feed grains have changed dramatically. The preponderance of U.S. feed grain exports went to Europe in the 1960's, but by the 1990's, the majority was shipped to East Asia. The relative decline in the value of feed grain exports in total U.S. agricultural exports is explained more by the decline in real prices than by the change in quantities. Given the four-fold decline in prices, the continued ability of feed grain producers to produce and export is a testament to their increased productivity. The increase in yield per acre of feed grains has helped compensate for declining prices. As incomes per capita increase, there is a natural tendency for individuals to change their diets from a high concentrations of grains and tubers to more meat products. At very high income levels, the diet moves toward more horticulture and processed products. The economies of the two most populous countries, India and China, have been growing at very high rates over the last decade. At some point, the impact of growing income will translate into an increased demand for meat and poultry products. This should stimulate demand for feed grains for the growing livestock production in those countries and raise demand for meat and poultry imports. This translates into more feed grains being exported both directly and indirectly. Special Article New Census Data Spark Revisions in Estimated Food and Industrial Uses of Feed Grains by Allen J. Baker 1/ 1/ Agricultural Economist, Marketing, Trade, and Economics Division, Economic Research Service. Abstract: The Economic Census, taken every 5 years, provides data on shipments of products and inputs used by manufacturers. These data provide a base for measuring the rate of growth or decline in the manufacture and use of products of grain, as well as the quantity of grain purchased by a manufacturing industry. Thus, the census data provide a valuable benchmark to check estimates of food and industrial uses of grains. The 1997 Economic Census covers manufacturing activity in 1997 and was used in this analysis. Keywords: Product, industry, feed grains, shipments, materials used. Introduction Feed grain use is measured by the difference between the total supply available for a market period, and stocks on hand at the end of the period. These data are updated and published periodically in commodity-specific supply and use balance sheets. Feed grain disappearance reflects a large number of different uses, which are aggregated by three major categories: 1) exports; 2) food, seed, and industrial (FSI) use; and, 3) feed and residual disappearance. Official data on exports are collected and published by the Department of Commerce, with a lag of about 6 weeks. While data on grains inspected for export, and reports of weekly exports and outstanding sales (U.S. Export Sales reports) are available with a lag of about 1 week, the Department of Commerce monthly export data are used in USDA's supply and use tables. FSI use is estimated using several sources. Seed use is estimated from area planted and seeding rates. Use in processing food and industrial products is estimated from industry contacts, reports of the Bureau of Alcohol, Tobacco, and Firearms, and the monthly oxygenate report from the Energy Information Administration of the U.S. Department of Energy. Feed and residual disappearance is the remainder after deducting exports and FSI use from total disappearance. Feed and residual use is a measure of grains used in feeding livestock, poultry, pets, and zoo animals, plus a residual component. The residual component is an aggregate of all estimating errors, waste, grain in transit when stock data are collected, and related data. The Economic Census (previously known as the Census of Manufactures), taken every 5 years, provides a valuable benchmark of the food and industrial processing uses of grains, the quantity produced of each product, and the amount of grain used in processing. These data not only allow revision of the FSI estimates for the census year, but in conjunction with annual survey data and other data sources, enable estimates to be revised in years between censuses. Data are now available from the most recent census in 1997. The New Economic Census The North American Industry Classification System (NAICS) was used for the first time as the basis for publishing data from the 1997 Economic Census. The NAICS for manufacturing covers somewhat different groups of industries than the old Standard Industrial Classification (SIC) system. The Economic Census- Manufacturing is collected on a establishment basis. To qualify as an establishment, a unit must employ at least one person during the census year. An industry is comprised of establishments that produce the same product, or a group of closely related products, and is identified by a six-digit NAICS code. The adoption of the NAICS has had a major impact on the comparability of data between the 1992 and 1997 censuses. Approximately half of the industries in the manufacturing sector of NAICS do not have comparable industries in the SIC system. Another problem is that if quantity was not significant or could not be reported by manufactures, only value of shipments was collected. Because quantities generally are more important than values in determining feed grain use, the Census has become less useful for that purpose. Adjustments to Corn FSI In 1997/98, the total food and industrial use was up 1 percent from the old estimate based on the 1992 Census of Manufactures. Several of the manufacturing establishments in the Economic Census industry series use corn to make their products. Wet corn milling is the establishment primarily involved with the production of starches, high fructose corn syrup (HFCS), and glucose and dextrose. Unfortunately, much of the needed data for estimating corn use was not reported, as it was primarily values rather than quantities. After consulting with industry sources and using the limited census data available, it appears that corn use has been overestimated for HFCS, glucose and dextrose. In 1997/98, corn used to produce HFCS was 4 percent less than the earlier estimate based on the 1992 Census of Manufactures using SIC. Glucose and dextrose was overestimated by 6 percent. Corn used to produce starch was underestimated by 5 percent. The grouping included in "cereals and other products" for the supply and use table, includes the census products from the milling industry made of corn plus whole grain field corn used by the tortilla manufacturing industry, other snack food manufacturing (corn chips), and perishable prepared food manufacturing. As in 1992, corn used to make cereal was not reported by the census and we assumed the corn was included in the corn milling industry report. In 1992, we estimated the amount of corn required to produce corn milled products (several of which were estimated from census values). This quantity was larger than the corn reported under materials consumed by kind. Since some of the product quantities were estimated, we assumed the "material consumed" number was more nearly correct. In the 1997 census nearly all of the corn milled product quantities were reported and the quantity consumed value was footnoted as 20 to 29 percent estimated. We have used the sum of the products converted to corn equivalent even though it is 27.9 million bushels higher than the reported Aused@ figure. As a result, corn used in "cereal and other products" for 1997/98 is up 34 percent from the earlier estimate. If we had used the same procedure as in 1992, use would have been up 13 percent. Unfortunately, the Economic Census does not provide sufficient detail to "true up" our estimates of corn used in manufacturing alcoholic beverages, fuel alcohol, and denatured alcohol for other uses. The milling industry report does report corn brewers' grits production, but the distilleries report is missing corn used. For fuel alcohol, agricultural products (including flowers, grains, seeds, and herbs) were all grouped together and a value was reported. Most fuel alcohol is still produced by a wet milling processB71 percent of the value of fuel alcohol shipments was from wet mill plants. Adjustment to Oats FSI Because of disclosure problems, the Economic Census was not able to report oats products produced by the milling industry. The estimate for this report is based on oats used in various products reported by the census plus industry estimates. USDA's supply and utilization tables are based on whole grain. For most of the feed grains, trade in grain products is small and is primarily exports. Thus estimates of FSI use account for the grain that is milled then exported. For the oats FSI estimates used in the supply and utilization tables, only oats milled in the United States is used. However, for ERS consumption estimates, imported products are added in. With this change noted, oats in food and industrial uses is down 26 percent from the last census. In the Economic Census, the value of rolled oats shipments was down 45 percent since the 1992 Census of Manufactures. This was the only comparison between censuses reported for oats-type cereals. In other products, oats use is still growing. For example, the pounds of oatmeal cookies shipped were up 10 percent from the earlier census. Barley FSI No changes were made in the barley food and industrial uses since the Economic Census estimates for barley use were essentially the same as the number we had been using. Barley use from materials consumed was summed up from malt manufacturing, breakfast cereal manufacturing, and flour milling. Barley use was estimated from the cost of barley for malt beverage manufacturing. END_OF_FILE