Sowing the Seeds of Self-Reliance for Forty Years
Welcome to The Ark Institute ®
Flaws in Crystal Ball
Confirm Fragile Food Supply
13 Aug 97
by Geri Guidetti
All contents copyright © 1997, Geri Guidetti. All rights reserved.
________________________________________
Predicting the size of the expected harvest from crops that have barely broken ground is fraught with uncertainty. Yet, when an unusually high number of acres are planted, when the weather is perfect, and when so many farmers are telling you things are going great, it is easy to succumb to the rosy view. So it was this May when the Department of Agriculture gave the potential corn crop its best shot and predicted that corn supplies would be up a whopping 11 percent this year, thus increasing the stocks left over before the next harvest by 440 million bushels. This would have been a significant improvement over the sagging stocks of recent years.
Nature has a way of humbling us though, and persistent dry weather conditions over the Nation's critical Corn Belt this summer have resulted in the decline of corn crop condition. Instead of being "as high as an elephant's eye", corn plants in many areas will be lucky to see a farmer's knee. Soil moisture levels in Iowa were at their lowest since July 3, 1992. The lack of moisture covers a swath of land extending from Missouri northeastward to New York, according to the Agriculture Department. Texas and parts of Florida are also very dry.
A first survey of farmers now indicates that there might be 9,278 million bushels of corn this season. That's down 424 million from last month's estimates and well below the spring projections. In fact, it now looks as though this season's U.S. crop will not even reach last year's harvest levels. That's a far cry from the earlier, bumper crop predictions, and Wall Street has taken note of it. Corn futures prices are going up.
What's more, unfavorable weather has also reduced yield prospects in China, where new estimates forecast corn production down 12 million tons due to hot, dry conditions. Australia and Canada also report reduced yield prospects. One bright note: Russia and the Ukraine are projecting better crops than expected. Yet, overall, global stocks will be down. According to the USDA, "Most of the substantial reduction in global ending stocks is in China and the United States."
Ending corn stocks in the U.S. this September 1 are estimated at 941 million bushels. Ending stocks for September 1 '98, those left over before the next crop comes in, are now projected to be 847 million bushels. That includes corn available for animal feed, seed for future crops, industrial use and human food.
That is a 33-day supply of corn at current rates of use, including projected exports, according to my calculations, based on USDA data. If we had a catastrophic crop failure and, by national edict, decided not to export any of our crop this year, we would have 42 days worth in the national corn hopper. Thirty-three days is not a whole lot of cushion. Forty-two days isn't much better. Neither could see us through to next year's crop if there was any significant disruption in production or distribution. Heaven forbid next year's crop didn't materialize.
Let's look into a bigger crystal ball. This February, the Department of Agriculture released a weighty document called Agricultural Baseline Projection to 2005, Reflecting the 1996 Farm Act. The document is designed to project long-term agricultural commodities, trade and "aggregate indicators.....such as farm income and food prices," it says. Here is the stated premise for the projections: "The projections are a conditional scenario with no shocks and are based on specific assumptions regarding the macroeconomy, the weather, and international developments. The projections are not intended to be a Departmental forecast of what the future will be, but instead a description of what would be expected to happen under the 1996 Farm Act, with very specific external circumstances.....Normal weather is assumed."
The document projected that U.S. feed grain would increase steadily through 2005, noting that the increase would mainly be due to increases in corn supplies. In fact, they projected, "Corn is the only individual grain projected to reach new production records....Feed grain supply increases are virtually all due to gains in corn." Obviously, this year's revised corn crop realities are a major disappointment, but reading further we see an even greater significance to this set-back: "However, after 1998, demand growth outpaces increases in production, resulting in declines in stocks."
After 1998, demand is projected to outstrip even the higher production that never materialized, further reducing stocks. That tells me that ending stocks are likely to be lower—a lot lower—than 33 days in the years ahead, especially in seasons challenged by weather. Last year there was the real prospect of running out of corn stocks completely before last summer's harvest came in. Ending stocks were dangerously low. Estimates ranged from 18 - 25 days to none at all. In fact, you may remember from these reports that the price of the remaining stocks rose so high that ranchers in Texas and the Southwest sent record numbers of cattle to slaughter because they could not afford to feed them.
The Agriculture Department document predicts further that corn stocks will trend downward from 1999 to less than 800 million bushels by the year 2005. You will see above that ending stocks for this September are estimated at 941 bushels, and that's low. The department does see a positive side to these diminishing food stocks: "This tightening outlook supports prices. Corn prices rise from a low of $2.45 in 1997 and 1998 to $3.10 a bushel in 2005." Does that comfort you?
Wheat
A brighter note this season, yet no less indicative of the fragility of our food supply projections, is the wheat picture. The hard freezes that struck winter wheat fields in Kansas, Oklahoma and Texas in the spring did less damage than anyone expected. Nearly perfect wheat growing weather followed, and many of the plantings recovered.. In fact, a newspaper story in The Star in Kansas, calls it "the comeback crop."
Today the USDA revised its forecasts for the size of this year's wheat crop upward to the highest level in 7 years. Its figures, however, include carry-over stocks from higher imports of wheat last season, mainly from Canada. Will this translate into a much more comfortable ending stocks by next June? You be the judge. Ending stocks this past June, the month when this data is taken, were estimated at 444 million bushels. By next June, projections are that there will be 695 million bushels in the nation's granaries. IF those numbers materialize—if exports and use remain as projected for the year—that would be about 100 days of wheat in the kitty—an improvement by my calculations, but nowhere near enough to see us through even a single, bad crop season. Will we keep that much in the kitty?
The Department of Agriculture states: "The larger crop is expected to translate into higher exports (up 50 million from the July forecast) and lower imports (down 5 million). U.S. export opportunities have improved during the last month as production forecasts have declined for Canada, Australia and Argentina."
That's the reality of a global marketplace. We are no longer in the business of storing our own bounty if/when it happens. We are in business—period. As a final illustration of that national commitment, the USDA closes its report on wheat with the following: "The decline in foreign competitors' production is more important for U.S. export prospects than the increase in China and NIS (newly independent states such as Ukraine). Although China and the USSR were the largest wheat importers during most of the 1970s and 1980s, last year Egypt and Iran emerged as the world's top wheat importers. Reduced foreign competitor production, hand-in-hand with increased U.S. supplies, will allow the U.S. share of world wheat trade to expand in 1997/98..."
So there you have it; bad weather and bad harvests are good for business when your country is the one holding the wheat. Sell it to Egypt, Iran, Africa, China or whomever. But this still begs the question: what happens in a year when a miraculous, comeback crop doesn't come back—when the U.S., too, is left in food deficit? Will we buy back U.S. grain being stockpiled in Iran? In Egypt? In China?
This year's disappointing corn crop should remind us, once again, that the pictures viewed inside crystal balls are, at best, fuzzy. At their worst, they are the constructs of optimism and even of fantasy. When it comes to food, I would opt for a bit of pessimism and prudent preparation.....Geri Guidetti, The Ark Institute
_______________________________________
E-mail for information: arkinstitute@aol.com
Food and Grain Supply Updates may be reprinted without permission IF no revisions are made and copyright and signature files remain intact.
All contents copyright © 1997, Geri Guidetti. All rights reserved.
Revised: 15 Aug 97
