KSU Corn Market Outlook in Mid-October 2018: Prospects for Higher Prices through Spring 2019

An analysis of U.S. and World Corn supply-demand factors for the “New Crop” 2018/19 is provided in the following article.  This article was released on Monday, October 15th, and follows the USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports on October 11, 2018.

A full version of this article will available on the KSU AgManager website http://www.agmanager.info/ at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

Following is the article with supporting Tables and Charts for “Corn Market Outlook in Mid-October 2018″

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Corn Market Outlook in Mid-October 2018

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

October 15, 2018

1. Overview of U.S. Corn Supply-Demand Prospects in October 2018

Corn market prices in the U.S. have become more positive since the lows that occurred on September 19th.  There are a number of factors that affecting direction of U.S. corn market prices.

  • Negative U.S. Corn Market Factors

U.S. Corn Production in 2018: The most important negative market factor is the projected size of the 2018 U.S. corn crop at 14.778 billion bushels (bb) – forecast to be the second highest on record behind 15.148 bb in 2016, but up from 14.601 bb in 2017 (Table 1 & Figures 5-7)

Total U.S. Corn Supplies in “new crop” MY 2018/19: In addition, the USDA projects total supplies of U.S. corn in the “new crop” 2018/19 marketing year (MY) starting 9/1/2018 to be a record high 16.968 bb – maintaining downward pressure on U.S. corn prices.  Total supplies of U.S. corn in MY 2016/17 were a previous record high of 16.942 bb, and were only marginally lower at 16.934 bb in “old crop” MY 2017/18 which ended on August 31, 2018 (Table 1 & Figure 7).

  • Positive Corn Market Factors

However, a number of factors are providing positive support for U.S. corn supply-demand and price prospects – including strong exports, developing harvest delays from wet fall weather, ongoing strong ethanol usage, and uncertain South American corn production prospects in in 2019.  

Strong U.S. Corn Exports: In recent weeks, U.S. corn export shipments have been strong – above the pace needed to meet the USDA’s October 11th updated forecast of 2.475 bb in exports for “new crop” MY 2018/19.  For the weeks ending September 27th and October 4th, the U.S. had corn export shipments of 55.4 and 53.2 million bushels (mb), respectively.  These were above the pace of 47.8 mb needed to meet the USDA forecast of 2.475 bb – which had already been raised by 75 mb in the October 11th USDA WASDE report.  Accumulated exports of 228.6 mb as of October 4th were 9.2% of the 2.475 bb USDA projection for “new crop” MY 2018/19.   Total shipments and forward sales as of 10/4/2018 were 775.5 mb – equaling 31.3% of the USDA’s 2.475 bb projection with 7.7% (4 or 52 weeks) of “new crop” MY 2018/19 completed (Table 1 & Figures 10-11)

As a result, strong positive signals exist for U.S. corn exports to remain strong in coming months – providing support for U.S. corn prices. 

Developing 2018 U.S. Fall Harvest Delays:  As of October 7, 2018 the U.S. corn harvest was estimated to be 34% complete in the 18 major states – compared to the recent 5 year average of 26% completed.   However, since October 8th the National Oceanic and Atmospheric Administration (NOAA) reports that rainfall as much as 200% to 400% or more above normal has been received in parts of the U.S. Corn Belt from Texas north, through Oklahoma, Kansas, Nebraska, parts of Iowa, South Dakota, North Dakota, Minnesota and Wisconsin.  In addition, the eastern states of Georgia, North and South Carolina, and elsewhere have been affected.  Precipitation from Kansas to the north fell in the form of snow. 

The result of these accumulated precipitation events will be to delay the 2018 U.S. corn harvest to some degree – providing at least moderate support for corn prices through the remainder of the U.S. Fall harvest.

Ongoing Strong Ethanol Use:  According to Environmental Information Administration (EIA) data, for the period of September 1st through October 5th, 2018, U.S. ethanol production has averaged 1.032 million barrels per day (range of 1.02 to 1.051 mb/d).  Assuming 42 gallons of ethanol per barrel, and 2.8 gallons of ethanol per bushel of either corn or grain sorghum used in the production process, this rate of U.S. ethanol production would result in 5.592 bb of U.S. feedgrain use for ethanol.  Assuming approximately 75-100 mb of U.S. grain sorghum to be used for ethanol production in “new crop” MY 2018/19, at the current pace of usage there would be 5.000-5.250 bb of U.S. corn used for ethanol production over the same period.  This amount of ethanol use would be down 450-650 mb from the USDA’s projection of record high 5.650 bb use for ethanol (Table 1, Figures 9abc-10)

However, the Environmental Protection Agency’s (EPA’s) recent action to approve the use of E15 on a season-round basis in U.S. motor fuels may lead to increased feedgrain use for ethanol during the remainder of “new crop” MY 2018/19 through August 31, 2019.  

Taken together, these results indicated continued strong use of U.S. feedgrains in general and U.S. corn in particular in domestic ethanol production.  

Uncertain Prospects for South American Corn Production in 2019:   As a result of what can be formally termed to be a “trade war” between China and the United States, China’s soybean export purchases have shifted completely away from the U.S. to Argentina, Brazil and other non-U.S. World soybean producing countries.  The export price difference between locations in Brazil and the U.S. are estimated to be more than $2.00 per bushel when converted to U.S. dollars.  Given this price differential favoring South American soybeans, it makes sense that South American farmers will have an incentive to increase their soybean acreage and production in 2019 (Figures 14 & 15abc).  

Early planting progress for soybeans in Brazil is ahead of historical pace, with indications that soybean acreage will be increased – likely drawing acres away from first crop Brazilian corn (which typically accounts for 1/3 of the Brazil corn crop).   The second Brazilian corn crop – much of which typically enters World export markets – will be planted on harvested soybean acres in early 2019.   

Consequently, IF there is a sizable acreage shift toward soybean acres in South America in 2019, and if those acres come from corn, THEN lower World corn production will help support prices in late Winter – Spring 2019.     

  • U.S. Corn Market Factors “Taken Together”

Considering all these factors together, it seems appropriate see the outlook for U.S. corn markets through Spring 2018 to be conservative due to large domestic corn supplies, but with upward potential based on prospects for strong domestic use and strong exports as a result of reduced foreign export competition”. 

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2. CME Corn Futures & Kansas Cash Corn Prices & Basis Bids

  • Corn Futures Price Trends

Since the release of the USDA’s October 11th World Agricultural Supply and Demand (WASDE) report, “new crop DECEMBER 2018 CME corn futures prices have trended higher.  On October 11th, the day of the report, DEC 2018 corn closed higher – up $0.06 ¼ to $3.94 per bushel.  In the days following, DEC 2018 corn has traded higher – up to $4.02 ¼ on Monday, October 15th (Figure 1).   “New crop JULY 2019 CME corn futures prices also closed higher on October 11th – up $0.06 ¼ to $3.94 per bushel.  Then – just as for the DEC 2018 contract, JULY 2019 corn futures traded higher – up to a close of $4.02 ¼ on October 15th (Figure 1).  

  • Corn Futures Positions of Traders (CFTC Data)

Position of traders data released by the Commodity Futures Trading Commission (CFTC) is available from the CFTC at the following web address:  https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm      The CFTC position of traders data on October 9th shows are more stable picture of corn futures trader sentiments that may have been otherwise expected.  This is especially true in regards to the quantity of long futures positions held by Management Money (Speculator or “Spec”) traders than otherwise expected given harvest time futures prices.

Net Positions of Commercial & Spec Traders: The net “short” or “sell” positions of CME Corn futures speculative or “management money” traders declined to 197 million bushels (mb) on October 9, 201– down to the smallest net “bearish” or sell position since June 12, 2018 (Figure 3a).  This may be due to a perception that a “harvest low” may have been reached in DEC 2018 corn futures.  The net short position of commercial hedgers on October 9th was 1.205 bb, up from a net short position of 824 mb on September 18th, but less than net short positions ranging from 2.101 bb-2.143 bb for the 7/27/2018 – 6/12/2018 period, and 1.313 bb-1.339 bb during the 7/31/2018-8/21/2018 time frame.  The net position of index traders were consistently long during the 6/12/2018-10/9/2018 period, in the 822 mb-988 mb range (972 mb long on 10/9/2018). 

Commercial Hedgers Long & Short Positions: Both the “short / sell” and “long / buy” positions of CME Corn futures commercial hedgers has remained relatively consistent since early July 2018 (Figure 3b).  Total commercial hedger “short / sell” positions have ranged from 2.328 bb to 2.617 bb during the 7/3/2018-10/9/2018 period, with 2.328 bb in “short / sell” positions on 10/9/2018.  The typical grain futures transactions and positions of commercial grain elevators and/or farmer hedgers would fall in this category.   Commercial hedger “long / buy” positions have ranged from 3.392 bb to 3.859 bb during the same period, with 3.532 bb in “long / buy” positions on 10/9/2018. The typical grain futures transactions and positions of commercial grain processors, ethanol plants, and livestock feeders would fall in this category.  

Managed Money (Specs) Long & Short Positions: Both the “short / sell” and “long / buy” positions of CME Corn futures management money (speculative) traders has remained relatively consistent since early August 2018 (Figure 3c).  Total speculator’s “short / sell” positions have ranged from 1.204 bb to 1.334 bb during the 8/7/2018-10/9/2018 period, with 1.261 bb in “short / sell” positions on 10/9/2018.   Speculator’s “long / buy” positions have ranged from 1.458 bb to 1.996 bb during the same period, with 1.458 bb in “long / buy” positions on 10/9/2018.

  • Corn Cash Price & Basis Trends in Kansas

In Western Kansas on Wednesday, October 15th cash corn bids at major grain elevators ranged from $3.38 ($0.40 per bushel under DEC 2018 futures) to $3.83 ($0.05 over), and ranged from $3.23 ¼ ($0.55 under) to $3.43 ¼ ($0.35 under) in Central Kansas.  These prices are still higher than when corn bids statewide had fallen to $2.66-$2.96 /bu on December 23, 2016, and above marketing loan rates near $2.05 in Central Kansas and $2.19 per bushel in Western Kansas

Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.38 ¼ /bu on October 15th, with basis bids being $0.40 /bu under DEC 2018 corn futures.  These cash corn prices are still up from the range of $3.26-$3.28 per bushel on 12/23/2016 – though not by as much as in western and central Kansas.  Cash corn bids at Kansas ethanol plants on October 15th ranged from $3.58 ¾ /bu ($0.15 under DEC) to $3.93 ¾ ($0.20 over JULY) – continuing to indicate strength in ethanol demand for corn in Kansas and nationwide.

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3. Alternative KSU S-D & Price Forecast for “New Crop” MY 2018/19

Three alternative KSU-Scenarios to the USDA’s forecast for U.S. corn supply-demand and prices are presented in what follows for “new crop” MY 2018/19 (Table 1a & Figure 12).  These projections show how varying 2018 U.S. corn production and export / total use scenarios could affect U.S. corn supply-demand and price outcomes in “new crop” MY 2018/19.  Probability-weights are added to reflect judgements about how likely each scenario is to occur in “new crop” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.

A – October 11th USDA WASDE Corn S-D Scenario for “New Crop” MY 2018/19: (60% probability): Assumptions are: 89.140 ma planted, 81.767 ma harvested, 180.7 bu/ac yield, 14.778 bb production, 16.968 bb total supplies, 5.650 bb ethanol use, 1.450 bb food & industrial use, 2.475 bb exports, 5.550 bb feed & residual use, 15.155 bb total use, 1.813 bb ending stocks, 11.96% Stocks/Use, & $3.50 /bu U.S. corn average price

B – KSU “Lower 2018 U.S. Corn Production” Scenario for “New Crop” MY 2018/19: (20% probability): Assumptions are: 89.140 ma planted, 81.767 ma harvested, 178.5 bu/ac yield (down vs the USDA yield of 180.7 bu/ac), 14.579 bb production (down vs the USDA’s 14.778 bb), 16.769 bb total supplies (down vs the USDA’s 16.968 bb), 15.155 bb total use, 1.614 bb ending stocks (down vs the USDA’s 1.813 bb), 10.65% Stocks/Use (down vs the USDA’s 11.96%), & $3.750 /bu U.S. corn average price (up vs the USDA’s $3.50 /bu)

C – KSU “Higher 2018 U.S. Corn Exports” Scenario for “New Crop” MY 2018/19: (10% probability): Assumptions are: 88.140 ma planted, 81.767 ma harvested, 180.7 bu/ac yield, 14.778 bb production, 16.968 bb total supplies, 2.550 bb exports (up vs the USDA’s 2.475 bb), 15.230 bb total use (up vs the USDA’s 15.230 bb), 1.7383 bb ending stocks (down vs the USDA’s 1.813 bb), 11.41% Stocks/Use (down vs the USDA’s 11.96%), & $3.60 /bu U.S. corn average price (up vs the USDA’s $3.50 /bu);

D – KSU “Lower 2018 U.S. Corn Production & Higher Exports” Scenario for “new crop” MY 2018/19: (10% probability): Assumptions are: 88.140 ma planted, 81.767 ma harvested, 178.5 bu/ac yield (down vs the USDA yield of 180.7 bu/ac), 14.579 bb production (down vs the USDA’s 14.778 bb), 16.769 bb total supplies (down vs the USDA’s 16.968 bb), 2.550 bb exports (up vs the USDA’s 2.475 bb), 15.230 bb total use (up vs the USDA’s 15.230 bb), 1.539 bb ending stocks (down vs the USDA’s 1.813 bb), 10.11% Stocks/Use (down vs the USDA’s 11.24%), & $3.90 /bu U.S. corn average price (up vs the USDA’s $3.50 /bu).

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4. World Corn Supply-Demand – Both With & Without China

World Production:  World corn production of 1,068.31 million metric tons (mmt) is projected for “new crop” MY 2018/19, up 3.3% from 1,034.23 mmt in “old crop” MY 2017/18, but down 0.9% from the record high of 1,078.31 mmt in MY 2016/17 (Figures 14).  The “new crop” 2018/19 marketing year begins September 1, 2018 and continues through August 31, 2019.  Production in Argentina of 41.0 mmt in 2019 would be a “rebound” from the short crop of 32.0 mmt projected in 2018, and equal again to 41.0 mmt produced in 2017.  Similarly, production in Brazil of 94.5 mmt in 2019 would also be a “rebound” from the short crop of 82.0 mmt projected in 2018, but down from 98.5 mmt in 2017.  The 2018 corn harvests for Argentina and Brazil occur in the later half of “New Crop” MY 2017/18, i.e., February through August 2019.

World Total Supplies: World corn total supplies of 1,266.52 mmt in “New Crop” MY 2018/19 are forecast to be up 0.4% from 1,262.02 mmt in “Old Crop” MY 2017/18, but up 1.7% from the record high of 1,288.30 mmt in MY 2016/17. 

World Exports: World corn exports of a 162.97 mmt are projected for “New Crop” MY 2018/19, up 10.8% from 147.13 mmt in “old crop” MY 2017/18, but up 1.8% from the record high of 160.05 mmt in MY 2016/17 (Figure 14).

World Ending Stocks (% Stocks/Use):  Projected World corn ending stocks of 159.35 mmt (15.67% S/U) in “New Crop” MY 2018/19, are down from 198.21 mmt (18.63% S/U) in “Old Crop” MY 2017/18, down from the record high 227.79 mmt (21.48% S/U) in MY 2016/17, and 209.99 mmt (21.23% S/U) in MY 2015/16 (Figure 14 & 15a). 

Projected Foreign (Non-U.S.) corn ending stocks of 113.29 mmt (14.43% S/U) in “New Crop” MY 2018/19, is down from 143.84 mmt (19.18% S/U) in “Old Crop” MY 2017/18, and is down from 169.54 mmt (22.71% S/U) in MY 2016/17. 

World-Less-China Ending Stocks (% Stocks/Use): An alternative view of the World corn supply-demand is presented IF Chinese corn usage and ending stocks are isolated from the World market (Figures 15b-c).  “World-Less-China” corn ending stocks are projected to be 100.84 mmt (11.78% S/U) in “New Crop” MY 2018/19, down from 118.65 mmt (14.42% S/U) in “Old Crop” MY 2017/18, and down from 127.08 mmt (15.34% S/U) in MY 2016/17.  These figures show that World stocks-to-use of corn less China’s direct influence are projected to be 24.8% lower (i.e., 11.78% S/U for the “World-Less-China” versus 15.67% S/U for the “World” overall in “New Crop” MY 2018/19). 

World versus China Ending Stocks: At the same time, these figures also show that Chinese ending stocks of corn as proportion of the World total are declining – down from 52.75% in MY 2015/16, to 44.21% in MY 2016/17, to 41.14% in “Old Crop” MY 2017/18, and now are projected to be 36.72% in “New Crop” MY 2018/19.  The deliberate actions in recent years taken by the Chinese government to reduce feedgrain stockpiles is impacting the relative amount of World total corn stocks they hold.  These actions may eventually increase Chinese import demand for U.S. feedgrains IF and WHEN China eventually has a severe short crop situation and limited stockpiles available to meet domestic demand.

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5. Final Thoughts re: Corn Market Focus in “New Crop” MY 2018/19

However, this year, from November 2018 through January 2019, the “narrative consensus” of the corn market will likely have a greater focus on corn planting progress and early season development in Argentina and Brazil – particularly in tandem with a focus on similar reports about the acreage and progress of their soybean crops.  It is possible if not likely that news about the pace of usage of U.S. domestic corn and other feedgrains will have the attention of the U.S. corn markets during November 2018 through February-March 2019. 

The impact of this news will be exacerbated IF U.S. corn exports are spurred higher by worries about potentially lower South American corn supplies for export in spring 2019.  Then from late winter into spring 2019, U.S. corn markets will be simultaneously paying attention to the pace of U.S. corn domestic and export usage and to 2019 U.S. corn planting prospects.  The corn market will likely then be driven by 2019 U.S. corn production prospects from what remains of Spring through Summer and early fall 2019. 

During this anticipated “normal seasonal” price pattern for corn in “New Crop” MY 2018/19, U.S. producers will be making marketing decisions under conditions of “uncertainty” as profitable seasonal pricing opportunities present themselves.  For those with a “risk averse” perspective on corn price risk management, there will be a tendency to price corn “earlier” and in “greater quantities” to avoid the possibility of being forced to sell at lower prices later on.  This “early action” approach contrasts to those of producers who are less worried (i.e., “less risk averse”) about being in what is essentially a “speculative storage” position in the corn market – holding unpriced corn in storage longer while waiting for the possibility of a better price that may come later.   

The key point is that the likelihood exists of there being greater than normal price strength in U.S. corn markets through the Winter and Spring 2019 months – given the likelihood of more South American crop area being planted into soybeans to the exclusion of corn, and the strong domestic demand base that seems to exist for the U.S. corn crop.

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KSU Weekly Grain Market Analysis: Positive action in U.S. Corn Exports for Week Ending 10/4/2018

Positive News for U.S. Corn Exports from USDA Weekly Data

  • U.S. Corn Exports

In the USDA’s Weekly Exports Sales report – with data through October 4, 2018 – there was positive news for U.S. shipments of corn and grain sorghum.  Shipments of U.S. corn totaled 63.2 million bushels (mb) for the week ending October 4, 2018, up from the pace of 47.5 mb per week needed to meet the USDA’s increased U.S. corn export projection of 2.475 billion bushels (bb) for the “new crop” 2018/19 marketing year which began on September 1, 2018.  In addition, the combined total of U.S. corn shipments plus forward sales summed to 815.1 mb – amounting to 32.9% of the forecast of 2.475 bb through the 5th week of the “new crop” 2018/19 marketing year (i.e., 5/52 weeks, or 9.6% of the marketing year).

  • U.S. Grain Sorghum Exports

For the first time in “new crop” MY 2018/19 U.S. grain sorghum exports began to “appear”.  Shipments of U.S. grain sorghum totaled 2.46 mb for the week ending October 4, 2018, down from the pace of 3.1 mb per week needed to meet the USDA’s decreased U.S. grain sorghum export projection of 150 mb for “new crop” MY 2018/19 which began on September 1, 2018.  In addition, the combined total of U.S. grain sorghum shipments plus forward sales summed to 6.2 mb – amounting to 4.1% of the forecast of 150 mb through the 5th week of the “new crop” 2018/19 marketing year (i.e., 5/52 weeks, or 9.6%)

  • All U.S. Wheat Exports

The pace of all U.S. wheat sorghum exports so far in “new crop” MY 2018/19 have been “dragging” below the pace needed to meet USDA projections.  Shipments of U.S. wheat totaled 18.4 mb for the week ending October 4, 2018, down moderately from the pace of 22.6 mb per week needed to meet the USDA’s U.S. wheat export projection of 1.025 bb for “new crop” MY 2018/19 which began on June 1, 2018.  In addition, the combined total of U.S. wheat shipments plus forward sales summed to 257.3 mb – amounting to 41.7% of the forecast of 1.025 bb through the 18th week of the “new crop” 2018/19 marketing year (i.e., 18/52 weeks, or 34.6%)

  • U.S. Hard Red Winter Wheat Exports

The pace of all U.S. hard red winter (HRW) wheat sorghum exports so far in “new crop” MY 2018/19 have also been “dragging” below the pace needed to meet USDA projections.  Shipments of U.S. HRW wheat totaled 3.26 mb for the week ending October 4, 2018, down from the pace of 8.6 mb per week needed to meet the USDA’s U.S. wheat export projection of 365 mb for “new crop” MY 2018/19 which began on June 1, 2018.  In addition, the combined total of U.S. HRW wheat shipments plus forward sales summed to 124.2 mb – amounting to 34.0% of the forecast of 365 mb through the 18th week of the “new crop” 2018/19 marketing year (i.e., 18/52 weeks, or 34.6%)

  • U.S. Soybean Exports

Similar to U.S. wheat, the pace of U.S. soybean exports so far in “new crop” MY 2018/19 have also been “dragging” below the pace needed to meet USDA projections.  Shipments of U.S. soybeans totaled 32.5 mb for the week ending October 4, 2018, down from the pace of 40.6 mb per week needed to meet the USDA’s U.S. soybean export projection of 2.060 bb for “new crop” MY 2018/19 which began on September 1, 2018.  In addition, the combined total of U.S. soybean shipments plus forward sales summed to 755.0 mb – amounting to 36.7% of the forecast of 2.060 bb through the 5th week of the “new crop” 2018/19 marketing year (i.e., 5/52 weeks, or 9.6%)

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Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program that was played on Friday, October 12, 2018 are now available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

The recorded radio program was aired at 10:03 a.m. central time, Friday, October 12, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

KSU Weekly Grain Market Report: Corn, Sorghum, Wheat and Soybean Markets ahead of 9/28 USDA Report

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, September 28, 2018 will be available shortly on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/news/weekly-grain-market-outook-dan-obrien

The recorded radio program will be aired at 10:03 a.m. central time, Friday, September 28, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the September 28th recording will be available at the KSU Agriculture Today website.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

KSU Weekly Grain Market Analysis: Kansas Basis Trends for Corn, Sorghum, Wheat and Soybeans (Weak and Weaker)

Kansas Grain Basis Trend Situation & Outlook

Daniel O’Brien – Extension Agricultural Economist

September 21, 2018

Trends in local grain basis levels across Kansas reflect the expectation of large 2018 corn, grain sorghum and soybean crops to be harvested in the next 30-60 days in the United States as well as worries about grain demand – particularly U.S. exports resulting from U.S.-China trade tensions.  One exception is the trend toward narrower feedgrain and wheat basis levels in southeast (SE) Kansas – likely the result of dry conditions and lower production in Missouri to supply livestock feeding operations to in Arkansas and nearby locations.

A. Corn Basis Trends in Kansas

Corn basis levels in Southwest (SW), the western part of South Central (SC), and the Southeast (SE) corner of Kansas were the “narrowest” or “strongest” in Kansas as of September 19, 2018.  The weakest corn basis levels were found in North Central (NC) and western portion of Northeast (NE) Kansas.

Kansas corn basis levels have declined from their “narrowest” or “strongest” levels at major elevator locations in Colby (NW), Salina (Central-NC), Atchison (NE), and Hutchinson (Central-SC).  However, corn basis levels in the livestock feeding demand center of Garden City (SW) have remained at summer levels thus far heading into fall.  Corn basis levels in Columbus (SE) had sharply declined, but recently strengthened sharply again.  Recent corn basis levels in Hutchinson (C-SC) and especially Columbus (SE) have been at the strongest levels since at least the beginning of year 2015.

With corn harvest approaching throughout Kansas in the coming month and a large 2018 U.S. corn crop expected in most areas of the country, weaker cash prices and basis levels are expected during October-November 2018.  Surprise reductions in U.S. corn production estimates from the USDA in its October 11th and November 8th USDA NASS (National Agricultural Statistics Service) Crop Production reports could change current harvest price expectations and cause Kansas corn basis levels to strengthen.

B. Grain Sorghum Basis Trends in Kansas

Kansas grain sorghum basis levels have been near $0.50 per bushel under lead CME Corn futures contract prices across the state for most of the year.  The exception has been in the Southeast (SE) corner of Kansas were the “narrowest” or “strongest” in Kansas as of September 19, 2018.  The weakest corn basis levels were found in North Central (NC) and Central (C), Northeast (NE), and East Central (EC) Kansas.

Kansas grain sorghum basis levels have been quite consistent or “level” in 2018 across major elevator locations in the western 2/3 of the state, i.e., in Colby (NW), Salina (Central-NC), Garden City (SW), and Hutchinson (Central-SC).  However, grain sorghum basis levels Atchison (NE) have trended “lower” or “weaker” since mid summer, before “jumping” sharply higher again in the week ending September 19th.  Grain sorghum basis levels in Columbus (SE) have actually strengthened throughout most of year 2018 before a one time decline during late August-early September – and have been level since.  Just as for corn basis, since early July 2018 grain sorghum basis levels in Columbus (SE) have been at their strongest levels since at least the beginning of year 2015.

Just as with corn, with 2018 grain sorghum fall harvest approaching throughout Kansas in the coming month and a large 2018 U.S. feedgrain crop expected in most areas of the country, weaker cash prices and basis levels are expected during October-November 2018.  Any surprises from the USDA in its October 11th and November 8th USDA NASS (National Agricultural Statistics Service) Crop Production reports could change current harvest price expectations and cause Kansas grain sorghum basis levels to strengthen.

C. Wheat Basis Trends in Kansas

Kansas wheat basis levels have weakened significantly in all areas of the state of Kansas from June across nearly all areas of the state.  Wheat basis levels across major grain elevators in Colby (NW), Garden City (SW), Salina (C-NC), Hutchinson (C-SC), Atchison (NE), and Columbus (SE) are all near $0.50 per bushel under CME DEC 2018 Kansas HRW Wheat futures as of September 19, 2018.  These basis levels are “weaker” or “wider” by $0.40-$0.65 /bu since June 2018.

Possible surprises from the USDA in its September 28th USDA NASS (National Agricultural Statistics Service) Small Grain Annual Summary report could change current U.S. wheat supply-demand and price expectations and cause Kansas wheat basis levels to strengthen. However, stronger U.S. wheat exports would likely be needed to bring about higher U.S. HRW wheat prices and narrower basis – at least until spring-early summer 2019 when U.S. wheat production concerns could enter into the market’s “thinking”.

D. Soybean Basis Trends in Kansas

Kansas soybean basis levels have weakened significantly since June across major grain elevators across the state, such as in Colby (NW), Garden City (SW), Salina (C-NC), Hutchinson (C-SC), Atchison (NE) and Columbus (SE) through September 19, 2018.  The widest basis was $1.50 under CME NOV 2018 Soybean futures in Colby (NW) on 9/19/2018, with Garden City (SW) basis at nearly $1.30 under, $1.20 under in Salina (C-NC) and Hutchinson (C-SC), $0.90 under in Atchison (NE), and $0.80 under in Columbus (SE).

Just as with corn and grain sorghum, with 2018 soybean fall harvest approaching throughout Kansas and the U.S. in the coming month, and a large 2018 U.S. soybean crop expected in most areas of the country, as well as worries about U.S. soybean export prospects resulting from U.S.-China trade tensions, weaker cash prices and basis levels are expected during October-November 2018.  Any surprises from the USDA in its October 11th and November 8th USDA NASS (National Agricultural Statistics Service) Crop Production reports or an agreement the between the U.S. and China to avert further trade tensions and Chinese tariffs against U.S. soybean imports could change current harvest price expectations and cause Kansas soybean basis levels to strengthen.

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Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, September 21, 2018 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

The recorded radio program will be aired at 10:03 a.m. central time, Friday, September 21, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the August 4th recording will be available at the KSU Agriculture Today website.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

 

Examining Corn % Stocks-to-Use vs Cash Prices for the U.S. & the “World-Less-China” (KSU Ag Economics)

Daniel O’Brien – Extension Agricultural Economist, Kansas State University

September 14, 2018

In their September 12, 2018 World Agricultural Supply and Demand Estimates (WASDE) report, the USDA provided estimates of ending stocks and percent ending stocks-to-use for corn markets in the U.S., the World, and for the “World-Less-China”.  The following analysis estimates that U.S. corn prices are projected by the USDA to be $0.25 to $0.60 /bu lower in “new crop” MY 2018/19 than would have been the case following average stocks-to-use versus price relationships during the MY 2012/13 through “old crop” MY 2017/18 period. It also discusses why this may be happening, and what the implications may be for post-harvest price recovery.

A. U.S. Corn % Stocks-to-Use vs Prices

In spite of mostly pessimistic responses to recent USDA reports and other market projections, U.S. corn market supply-demand balances as represented by % ending stocks-to-use (% S/U) are forecast to tighten.  This continues the trend toward tighter U.S. corn % S/U since the 2016/17 marketing year.  Since the drought-induced U.S. short corn crop of 2012, % S/U has trended first higher and then lower.  In MY 2012/13 U.S. corn % S/U was a low of 7.4%, and then trended upward to 9.2% S/U in MY 2013/14, 12.6% S/U in MY 2014/15, 12.7% S/U in MY 2015/16, and the recent high of 15.7% in MY 2016/17.  Since then, U.S. corn supply-demand balances have declined to 13.4% in “old crop” MY 2017/18, and are projected to fall to 11.7% in “new crop” MY 2018/19 which began September 1, 2018. 

With U.S. corn % S/U declining to 11.7%, U.S. corn season average prices are projected to be in the range of $3.00 to $4.00 per bushel – with a midpoint projection of $3.50 /bu.  For market comparison sake, in the 2014/15 & 2015/16 marketing years with 12.6% S/U and 12.7% S/U, respectively, U.S. corn prices averaged $3.70 /bu & $3.61 /bu, respectively.  

From examining historic U.S. corn stocks-to-use versus U.S. corn marketing year average prices, it is estimated that the $3.50 /bu forecast at 11.7% S/U for “new crop” MY 2018/19 is approximately $0.25 lower than would have been the case during the MY 2012/13 – MY 2017/18 time period.  This assumes similar price responses to changing U.S. corn % S/U – all else being equal.  The assumption of “all else being equal” may or may not hold true – especially with current tensions affecting U.S. agricultural trade and market worries and concerns about their impact on U.S. corn supply-demand and prices.

B. “World-Less-China” Corn % S/U vs U.S. Corn Prices (Adjusted for the U.S. Dollar)

Similar to the U.S.-domestic based market analysis above, World corn market supply-demand balances (as represented by % S/U) are forecast to tighten.  Accounting for or “isolating” the impact of China’s large corn stock piles, “World-Less-China” corn % S/U is calculated. Following a similar approach to the U.S.-only calculations above, since the short corn crop year of 2012, % S/U has again trended first higher and then lower.  In MY 2012/13 “World-Less-China” corn % S/U was a low of 9.5%, and then trended upward to 12.2% S/U in MY 2013/14, 13.8% S/U in MY 2014/15, 12.9% S/U in MY 2015/16, and the recent high of 15.3% in MY 2016/17.  Since then, “World-Less-China” corn supply-demand balances have declined to 13.9% in “old crop” MY 2017/18, and are projected to fall to 11.5% in “new crop” MY 2018/19 which began September 1, 2018. 

With “World-Less-China” corn % S/U declining to 11.5% in “new crop” MY 2018/19, the U.S. corn season average price range-midpoint is forecast to be $3.50 /bu (as stated above).  Adjusting for the average U.S. dollar index value of 90.5480 in the first week of “new crop” MY 2018/19, the “dollar adjusted” U.S. corn price equals $3.17 /bu (compared to $3.50 /bu prior to U.S. dollar adjustment).

From examining historic “World-Less-China” corn stocks-to-use versus dollar-adjusted U.S. corn marketing year average prices, it is estimated that the $3.50 /bu forecast at 11.5% S/U for “new crop” MY 2018/19 is approximately $0.60 lower than would have been the case during the MY 2012/13 – MY 2017/18 time period – all else being equal.  

In other words, at an unadjusted U.S. corn price of $4.10 /bu (up $0.60 /bu from the USDA midrange price forecast of $3.50 /bu), the U.S. price would “fit” on the “World-Less-China” corn % S/U vs dollar adjusted U.S. corn price relationship (with 11.5% S/U and a dollar adjusted U.S. corn price of $3.71).

C. Corn Market Implications for “New Crop” MY 2018/19

There are important implications for the U.S. corn market if the findings of this article are accurate that U.S. corn prices are estimated to be $0.25 to $0.60 /bu lower than would have been the case under similar market conditions during the MY 2012/13 – MY 2017/18 period.  

First, the question of WHY this would be the case needs to be asked.  It is possible that prevailing market fears about how U.S. trade tensions with China, Mexico, Canada, Europe, and other countries may be being expressed in a somewhat pessimistic outlook for U.S. corn markets for the remainder of “new crop” MY 2019, i.e., from mid-September 2018 through August 2019.  Restated, fears about U.S. corn export prospects perhaps are being expressed in terms of lower corn bids in futures and cash markets.

Second, the seasonal focus of U.S. corn markets heading into the 2018 harvest is largely on prospects for a large if not near record U.S. corn crop, and this is likely having a strong negative affect on U.S. corn markets.   This would be an expected normal seasonal influence on U.S. corn markets in normal or large crop years. 

Third, IF U.S. corn prices ARE somewhat lower at this time than expected according to past market behavior and responsiveness to similar supply-demand balance scenarios, THEN it may be that post-harvest demand for U.S. corn in domestic and foreign markets may provide support for prices to move above pre-harvest / harvest levels in the U.S. during the post-harvest periodNormal seasonality tends to support post-harvest recovery of U.S. corn prices in normal or large crop years – as buyers typically have to bid higher to motivate farmer’s to sell corn out of on-farmer or even commercial storage. 

However, to the degree that U.S. corn prices may currently be lower than otherwise anticipated given U.S. supply-demand balances, THEN there seems to be an increased likelihood of a higher than normal post-harvest price recovery.

Fourth, the actions and reactions in coming months of farmers in both South America and the United States to corn and soybean market distortions brought about by U.S.-foreign trade tensions are likely to drive planting / acreage decisions and U.S. and World corn production prospects in 2019.   The prospect of higher soybean acres in Argentina and Brazil in 2019 in response to higher prices and other factors – and the possibility of lower corn acres in these countries as a result – may affect U.S. farmer’s expectations of corn versus soybean profitability in late-winter / spring 2019, and also their subsequent 2019 U.S. corn & soybean planting decisions.

D. Conclusions About Efficient Markets & the Purpose of this Article

Any analysis of the level of U.S. grain prices and whether they are justified at their current levels or not quickly turns to questions about the pricing efficiency and effectiveness of agricultural markets. While the seasonality of U.S. corn prices from harvest through post-harvest periods is not generally disputed by market analysts, there are often disagreements among them about the expected final levels of futures and cash markets in futures months or time periods.  

The purpose of this article is not necessarily to criticize the accuracy of current corn market price forecasts in the futures and options market.  However, it is intended to point out changing levels of price responsiveness to adjustments in U.S. and foreign corn percent ending stocks-to-use, and to help those marketing U.S. corn to make more informed sales and merchandising decisions in “new crop” MY 2018/19.

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Source: https://kscorn.com/2017/10/13/kansas-corn-estimate-rises-october-crop-report/

KSU Weekly Grain Market Analysis: The Status of U.S. Grain Markets Following the September USDA Reports

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, September 14, 2018 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/news

The recorded radio program will be aired at 10:03 a.m. central time, Friday, September 14, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the September 14th recording will be available at the KSU Agriculture Today website (http://www.ksre.k-state.edu/news/radio-network/ag-today.html)

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

KSU “Quick Analysis of the Numbers” Calculations of USDA September 12th Reports – Examining Grain Supply-Demand by Category and Country

A KSU “quick analysis” worksheet of the key grain marketing-related information found in the September 12, 2018 th USDA World Agricultural Supply and Demand Estimates (WASDE) report can be found on the Kansas State University AgManager.info website (http://www.agmanager.info/).

The spreadsheet contains a comparison of USDA September 2018 U.S. and Foreign grain supply-demand and market price forecasts for the “new crop” 2018/19 marketing year, with comparisons to

a) pre-report trade estimates,

b) the August 2018 USDA grain production and supply-demand projections, and

c) “old crop” MY 2017/18 U.S. wheat, corn, grain sorghum and soybean production and ending stocks data, and World wheat, coarse grain, corn and soybean supply-demand numbers.

Key information is contained on the following:

A. Brazil and Argentina crop production and supply-demand forecasts for 2018 and 2019 corn and soybeans.

B. Updated U.S. ending stocks projections for the “new crop” 2018/19 marketing year for major crops (corn, sorghum, wheat, and soybeans).

C. Updated World ending stocks projections for the “new crop” 2018/19 marketing year for major crops (corn, coarse grains, wheat, and soybeans).

The worksheet also contains a more extensive analysis of the September 12, 2018 WASDE report results in regards to World wheat, coarse grain, corn and soybean supply-demand results, focusing on country-by-country (or region-by-region in many cases) projections of production, imports, exports, domestic feed use, and ending stocks.

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Kansas Wheat to begin in earnest in October, 2018 (Source: Mark Parker, Farmtalk: www.farmtalknewspaper.com/news/crops/leaving-volunteer-wheat-tempting-but/article_9307e38c-f403-5a19-907c-5112bf01f293.html)