CHICAGO, Ill. — Sure, U.S. corn stocks are down steeply – 34 percent – from this time last year, according to USDA estimates. But why aren’t they down even further?

Market analysts expected Sept. 1 old corn stocks to be below 1 billion bushels, around 964 million, said Jack Scoville last Friday. Scoville, vice president of Price Futures Group in Chicago, wondered how, instead, they are closer to 1.13 billion bushels – and estimated the discrepancy to be in what’s been used for livestock feed.

Other analysts told the Chicago Board of Trade there might be more old corn left over because of improved ethanol conversion processes, needing less of the crop to produce as much fuel. The USDA reported 35 percent less corn in on-farm storage than a year ago, and 33 percent less in off-farm storage, and that corn disappearance was 60 million fewer bushels this season than for the summer of 2010.

Friday’s USDA report also estimated old soybean stocks up 42 percent and wheat down 12 percent from Sept. 1, 2010, at 215 million and 2.15 billion bushels, respectively. Soybean disappearance, at 405 million bushels, was down 17 million from the summer of 2010.

Jerry Gidel, a NARMS Futures Trading associate in Chicago, said wheat was also up from what analysts expected at closer to 2.04 billion bushels.

High protein fills the gap?

“The one category that you really never know about is the feed and residual,” Scoville explained of trying to predict USDA grain reports. Feeders this year were looking at wheat or anything else to avoid corn, which he said was “starting to price itself out of a lot” of livestock usage.

Shane Ellis, livestock extension program specialist with Iowa State University, agreed corn prices have made it unprofitable for producers to feed their poultry, hogs and cattle as much this year. “If these guys did not have feed locked in early for the entire year, they were losing money,” he pointed out.

He noted for the first time, national feed demand for corn is less than 50 percent of the crop’s total use, when livestock used to be the single largest customer; that has been replaced by ethanol. Some feedlots aren’t using corn at all, he said.

And, while it’s true livestock producers are more conservative with their herd sizes than three years ago, they probably haven’t reduced them enough for that alone to explain less corn feed use this year. Ellis said hog producers maintain fewer sows, but litter sizes have been incrementally increasing, so total numbers haven’t changed much since last year.

He also noted because of the Southern drought this summer, feedlots have taken on a great deal more beef cattle from producers unable to feed or afford the animals. Texas alone is down 1 million head.

Wheat may be filling in some of the lost corn demand, but it must be available nearby – Iowa, at least, is not known for its wheat fields – and it hasn’t been cheap, either. (Remember too, U.S. wheat stocks are also higher than some analysts expected.) In Iowa – and elsewhere, Ellis postulated – distillers dried grains (DDGs) are filling in the feed gap. DDGs are a high-protein, high-fat co-product from ethanol mixed with more traditional grains in varying ratios for different livestock. For example, he said cattle usually handle a 35-40 percent inclusion rate of modified wet DDGs, though some producers will try to push the ratio higher.

Hogs are generally advised up to a 15 percent inclusion rate because their monogastric systems have problems digesting without some starch. Also, he said feeding too many DDGs may affect quality of bacon, making the finished product softer than desired.

Ellis added poultry do very well on a high-protein diet, so he doesn’t know how high a DDGs ratio chickens may be capable of handling. “(Those producers will) feed anything and everything they can get their hands on,” he noted.

If producers are making up the difference by feeding DDGs, Gidel said, “That’s a huge change (from last year). That’s a huge number.”

This doesn’t mean DDGs are inexpensive; per ton, Ellis said they’re often cheaper than corn, but not by much. And, by the look of Friday’s corn futures, prices may be stuck down for a while, perhaps making the crop attractive once again for feeders. “Six-dollar corn will definitely be a welcome sight,” he said, then paused to consider. “I can’t believe I said that.”

Production and stocks

“When you look ahead to the harvest going on right now, we’ve certainly heard some yield-positive reports, which are not necessarily price-positive” for corn, Scoville said Friday morning, estimating futures prices would fall 10-20 cents that day. They ended 40 cents lower through July 2012, and lower but less than the 40-cent market limit for contracts beyond that date.

Wheat futures also ended down from Thursday’s close, by 45 cents for December 2011 and down for later futures, but not by as much of a decrease.

“The impact of this smaller wheat crop didn’t actually come through in the stocks report,” Gidel explained. He added Sept. 1 is often problematic for getting a good fix on national wheat stocks if spring wheat harvest is late; he said this “wheat in transit” should reflect more accurately in numbers later this year.

Wheat production for 2011 is estimated at 2.01 billion bushels, down 9 percent from last year, according to USDA.

The winter wheat primarily grown in this part of the Midwest is up slightly, but there are big decreases in spring and durum wheat production elsewhere in the country – down 25 and 51 percent from last year, respectively.

Iowa’s corn stocks for Sept. 1 were down to 268.3 million, when they were 411.6 million a year earlier. Illinois also saw a drop from 246.3 million to 15.6. million this year, as did Indiana from 73.4 million to 58.3 million; Ohio, from 57 million to 37.8 million; Kentucky, from 10.6 million down to 5.2 million; and Michigan, down just slightly from 26.2 million to 26 million.

Iowa’s soybean stocks were higher on Sept. 1, 2011, over one year earlier, from 38.1 million to 47.1 million bushels, as were Illinois’, from 20.7 million last year to over 29 million this year. So were Indiana’s, from 6.3 million to 10.7 million; Ohio’s, from 6.3 million to 16.7 million; and Michigan’s were up slightly from 4.6 million to 5.3 million.

Illinois wheat stocks were up from 47 million to 61 million bushels this year; Indiana, 33.6 million to 37.6 million; Ohio, 79 million to 84.7 million; and Michigan, 43.1 million to 51.8 million.