An analysis of Corn Market Situation & Outlook in mid-February 2019 for the remainder of the “current” 2018/19 and “next crop” 2019/20 marketing years is provided in the following article from Kansas State University Department of Agricultural Economics. This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) and other USDA reports on February 8, 2019.
A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:
Following is a summary of the article on “Corn Market Outlook in Mid-February 2019″
Corn Market Outlook in Mid-February 2019
Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension
February 13, 2019
1) Introduction – An Overview of the U.S. Corn Market & USDA Reports
1A – Corn Market Overview
While the U.S. and World corn market has adequate supplies at this time, ending stocks have been trending lower since the 2016/17 marketing year (MY). Market projections from the USDA are for this “tightening up” to continue through “next crop” MY 2019/20 which begins on September 1, 2019 and will last through August 31, 2020. By its’ behavior, it is evident that the U.S. corn market continues to have a group “narrative view” that supplies of U.S. corn will remain plentiful through at least mid-summer 2019.
Unless a short crop develops in South America in coming months, or there are serious corn planting delays in April-May 2019 in the United States – this predominant market narrative that there are“more than adequate U.S. corn supplies” will continue to limit any major upward movement in U.S. corn prices throughout Spring, Summer and Fall 2019.
Corn market price expectations in year 2019 are heavily influenced by seasonal grain futures price patterns over the most recent years and decades. Over the last 20 years the frequency of economically important price increases in DEC Corn futures from February to November is 25%. This occurred in years 2002 (up $0.20 /bu), 2006 (up $0.44 /bu), 2010 (up $1.47 /bu), 2011 (up $0.31 /bu), and 2012 (up $1.82 /bu). No such increase in DEC Corn futures from the preceding February to the following November has occurred in the last six (6) years – since the major U.S. drought and resulting short crop of year 2012. Since year 2012, February averages of DEC Corn futures have been greater than average prices for the following month of November by $1.26 /bu in 2013, $1.13 in 2014, $0.32 in 2015, $0.37 in 2016, $0.47 in 2017, and $0.28 in 2018.
Consequently (and conversely), 75% of the time over the last two decades the monthly average of DEC Corn futures during the previous February have been greater than during the following November just ahead of the DEC Corn futures closing month. Taking all these things together, the “consensus narrative opinion” of the corn market at this time seems to be that there will NOT be significant corn production problems in either South America or the United States this year. As a result, DEC 2019 corn futures prices are most likely to end up equal to or lower than current mid-February levels near $4.00 per bushel once we get to Fall 2019.
1B – U.S. Corn Market Factors “Taken Together”
Considering all these factors together, the outlook for U.S. corn markets in 2019 will continue to be “conservative due to large domestic corn supplies, but with upward potential based on prospects for moderate strength in domestic use and exports due to tighter foreign corn supply-demand balances”.
1C – The USDA’s Reports on February 8, 2019
On February 8, 2019 the United States Department of Agriculture (USDA) released a set of reports providing market information that had been “back-logged” since December 11, 2018 – the last USDA agricultural market information released before the recent U.S. Federal government shutdown.
The World Agricultural Outlook Board (WAOB) released its World Agricultural Supply and Demand (WASDE) estimates (https://www.usda.gov/oce/commodity/wasde/) after cancelling the scheduled January 11th report due to the U.S. government shutdown.
Similarly, the National Agricultural Statistical Service (NASS) released the latest Grain Stocks report for December 1, 2018 U.S. grain stocks levels, the 2019 Winter Wheat & Canola Seedings report, the February 2019 Crop Production report, and the 2018 Annual Crop Production Summary report (https://www.nass.usda.gov/Publications/Calendar/reports_by_date.php)
The USDA Foreign Agricultural Service (FAS) also released it’s February 2019 reports on World Agricultural Production, and separate reports on World Markets and Trade for Grain and Oilseeds (https://www.fas.usda.gov/data-analysis/scheduled-reports-2019).
2) “Limiting” 2019 Corn Market Factors as of February 13, 2019
There are several corn market supply-demand factors that are major determinants in corn market price direction, and that at this time provide resistance to corn prices moving higher. These include historically large 2018 U.S. corn production and total U.S. corn supplies in “current crop” MY 2018/19, and “moderating” but demand for U.S. corn ethanol use.
2A – U.S. Corn Production in Year 2018 & Expectations for Year 2019:
- The most important “negative” or at least “limiting” corn market factor continues to be the projected size of the 2018 U.S. corn crop at 420 billion bushels (bb) – forecast to be the third highest on record behind 15.148 bb in 2016, and 14.601 bb in 2017 (Table 1 & Figures 5-7).
- In the February 8, 2019 USDA Annual 2018 Crop Production Summary report the USDA lowered its’ projection of 2018 U.S. corn production by 206 million bushels (mb) down to 14.420 bb due to late harvest and other production limiting influences in parts of the United States. If this decline in 2019 U.S. corn crop size occurred by itself with no other supply-demand adjustments, it would be at least a moderately positive factor for U.S. corn market prices.
- However, in the February 8th WASDE report the USDA also made offsetting reductions in projected U.S. corn ethanol use, non-ethanol food-seed-industrial (FSI) use, and feed and residual use in its’ “current crop” MY 2018/19 supply-demand balance sheet. These projected reductions in U.S. corn usage in “current crop” MY 2018/19 offset nearly ¾ (i.e., 146 mb) of the reduction in year 2018 projected U.S. corn production and supplies. As a result of hese offsetting changes, the netted a 46 mb reduction in projected ending stocks in “current crop” MY 2018/19.
- The USDA’s updated preliminary forecast from its Long Term Agricultural Projections released in fall 2018 are for 2019 U.S. corn production to be 14.930 bb. This amount of U.S. corn production in 2019 would very likely cause a continuation of the “large supplies – moderate-to-large stocks” situation in the U.S. corn market that has existed since the drought that occurred in the 2012/13 marketing year.
2B – Total U.S. Corn Supplies in “Current” MY 2018/19 & “Next Crop” MY 2019/20
- In addition to a 14.420 bb U.S. corn crop in 2019, the USDA projects total supplies of U.S. corn in the “current crop” 2018/19 marketing year (MY) to be 600 bb. Although this figure was reduced 211 mb in the February 8th WASDE report, it is still the third highest on record – continuing to provide downward pressure on U.S. corn prices. Total supplies of U.S. corn in MY 2016/17 were a record high of 16.942 bb, and were only marginally lower at 16.939 bb in “old crop” MY 2017/18 which ended on August 31, 2018 (Table 1 & Figure 7).
- The USDA’s preliminary forecast of S. total corn supplies for “next crop” MY 2019/20 are approximately 16.715 bb after accounting for recent changes in implied USDA beginning stocks projections. “Next crop” MY 2019/20 will begin on September 1, 2019. These figures are available from the USDA’s updated Long Term Agricultural Projections released in fall 2018.
2C – U.S. Ethanol Use of Corn
- According to Energy Information Administration (EIA) data, for the period of September 1, 2018 through February 7, 2019, S. ethanol production has averaged 1.034 million barrels per day (range of 0.967 to 1.069 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 5.529 bb of U.S. feedgrain use for ethanol in “current” MY 2018/19.
- It is assumed here that approximately 80-100 mb of S. grain sorghum will be used for ethanol production in “current crop” MY 2018/19 (i.e., versus 110 mb in total food, seed & industrial use of U.S. grain sorghum in the February 8, 2019 WASDE report). As a result, at the current pace of usage there would be 5.430-5.450 bb of U.S. corn used for ethanol production over the same period.
- Projected S. ethanol use of 5.430-5.450 bb of corn would be down 125-145 mb from the USDA’s projection of a near record 5.575 bb use for ethanol for “current” MY 2018/19 (Table 1, Figures 9abc-10). The USDA lowered its February 8th WASDE projection of U.S. corn use in ethanol production in “current” MY 2018/19 by 25 mb to 5.575 bb due to operating losses in U.S. ethanol plants during the September 2018 through January 2019 period, and expectations by the USDA of lower ethanol production as a result.
- The Environmental Protection Agency’s (EPA’s) recent action to approve the use of E-15 gasoline blends on a season-round basis in U.S. motor fuels may lead to increased feedgrain use for ethanol during the remainder of “current” MY 2018/19 and in coming years.
3) “Supporting” 2019 Corn Market Factors as of February 13, 2019
There are also neutral-to-positive factors providing positive support for U.S. corn supply-demand and price prospects – including “moderating” but still historically strong demand for U.S. corn ethanol use and exports, and the risk of lower 2019 South American corn acreage and production prospects.
3A – U.S. Corn Exports
- United States’ corn exports have been strong to date in the “current crop” 2018/19 marketing year – with shipments at a seven (7) year high through early February 2019. The USDA forecast that U.S. corn imports would reach 450 bb in exports for “current” MY 2018/19. For the weeks ending January 17th, 24th, 31st and February 7th, the U.S. had corn export shipments of 44.4 mb, 35.2 mb, 35.5 mb, and 29.3 mb, respectively. These were behind the pace of 53.0 mb needed to meet the USDA forecast of 2.450 bb. At the most recent 4-week average pace of 36.1 mb/week, U.S. corn exports would reach 1.961 bb by the end of the marketing year – down 489.4 mb or 20% from the February 8, 2019 USDA WASDE projection.
- Accumulated U.S. corn export shipments of 732.3 mb as of December 27th (just prior to the recent U.S. government shutdown) were 29.9% of the 2.450 bb USDA projection for “current” MY 2018/19 with what at that time was 32.7% (i.e., 17 of 52 weeks) of the marketing year completed. Total shipments and forward sales as of 12/27/2018 were approximately 1.253 bb – equaling 51.1% of the USDA’s 2.450 bb projection with 32.7% (i.e., 17 of 52 weeks) of “current” MY 2018/19 completed (Table 1 & Figures 10-11).
3B – Uncertain 2019 Prospects for South American Corn & Soybean Production
- 2019 Brazil Soybean Production: Dry conditions in key agricultural areas of Brazil have caused declines of 5% to 8% in projected 2019 soybean production in that country – from early season projections of 120-122 million metric tons (mmt) down to 112-115 mmt. With parts of the country farther north and closer to the Equator, the Brazilian soybean harvest typically begins in early January and lasts through the end of May. So, the majority of the Brazil harvest remains, with more accurate information yet to come. The 2019 soybean crops in Brazil and Argentina will be counted in the “current” MY 2018/19 marketing year which extends to August 31, 2019.
- 2019 Argentina Soybean Production: Growing conditions in Argentina are generally estimated to be “wet”, but with no major concerns about crop damage to date. Being farther south, the Argentina soybean harvest typically begins in early March and lasts through the end of May. Just as for Brazil, the majority of the Argentina harvest remains, with more accurate information yet to come on actual 2019 production.
- 2019 Brazil Corn Production: The same dry conditions that have affected Brazil soybean production MAY eventually impact 2019 Brazil corn production. However, the 2nd crop planting of corn in Brazil began which began in mid-January will continue through mid-March, with harvest beginning in early May and lasting through the end of August. Therefore, it is still “too early” to make accurate forecasts of how 2019 crop conditions may affect the 2nd crop corn harvest in Brazil. The first crop of corn in Brazil is typically planted from mid-August through the end of December, with harvest occurring from January through May. Common practice has been to allocate the 1st crop of corn in Brazil for domestic uses, with the second crop being used more in the export market.
- To date, the USDA projects there to be a recovery in Brazil 2019 corn production up to 94.0 mmt – the 2nd highest on record. This would be up 15% from a drought affected low of 82.0 mmt in 2018, but still down 4.6% from the record high of 98.5 mmt in 2017. But the final 2019 corn production amount for Brazil is “yet to be determined”.
- Just as for soybeans, 2019 Brazil corn production will be counted in “current” MY 2018/19 marketing year ending on August 31, 2019. However, a large portion of the Brazilian corn exports from this crop will occur and count within the “next crop” 2019/20 marketing year beginning on September 1, 2019 and extending through the following August.
- 2019 Argentina Corn Production: The same wet conditions that have affected 2019 Argentina soybean production MAY eventually impact that countries’ corn production. Being further south, Argentina corn plantings occur in during September-December for its one annual crop, while the associated harvest typically follows in early March and lasts through the end of May.
- As in Brazil, it is still “too early” to make accurate forecasts of how 2019 crop conditions may affect the 2nd crop corn harvest in Argentina. To date, projections from the USDA are that Argentina will have record 2019 corn production of 46.0 mmt – but that outcome is “yet to be determined”.
4) CME Corn Futures & Kansas Cash Corn Prices & Basis Bids
4A – Corn Futures Price Trends
Since the release of the USDA’s February 8th World Agricultural Supply and Demand (WASDE) report, “lead contract” MARCH 2019 CME corn futures prices initially moved lower, but have since partially recovered. On February 8th, the day of the report, MAR 2019 corn opened at $3.76 ½ – trading as low as $3.74 and as high as $3.81 ¾ during the day before closing down $0.02 ¼ to $3.74 ¼ /bu. Since that day, MAR 2019 corn has trended first lower down to $3.71 ¾ and then back up to $3.78 ¾ before closing at $3.78 ¼ on Wednesday, February 13th (Figure 1). Considering long term trends in monthly, continuous Chicago Mercantile Exchange (CME) corn futures, recent lows of $3.18 ¼ (on 10/1/2014), $3.01 (on 8/31/2016), $3.38 (on 9/1/2017), and $3.36 ¼ per bushel (on 9/13/2018) have occurred. These are comparable to the close of $3.78 ¼ in MARCH 2019 corn futures on February 13, 2019 (Figure 1).
4B – 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 January 15th shows a “volatile” but at least temporarily “balanced” picture of corn futures trader sentiments, especially in regards to the offsetting quantities of “long” and “short” futures positions held by Management Money (Speculator or “Spec”) traders.
- Net Positions of Commercial, Spec, & Index Traders: The net “long” or “buy” position of CME Corn futures speculative or “management money” traders was 78 million bushels (mb) on January 15, 2019 – following net “long” positions of 246 mb being held just one week earlier on January 8th (Figure 3a). The net short position of commercial hedgers on January 15th was 1.416 bb, down moderately from net short positions in the range of 1.497-1.855 bb during the December 4th – January 8th The net position of index traders declined to 806 mb on January 15th, after having consistently been long during the 12/4/2018-1/8/2019 period, in the 909 mb-91 mb range.
- Commercial Hedgers Long & Short Positions: Both the “short / sell” and “long / buy” positions of CME Corn futures commercial hedgers have remained relatively consistent since early July 2018 (Figure 3b). Total commercial hedger “short / sell” positions have ranged from 3.727 bb to 4.024 bb during the 12/4/2018-1/8/2019 period, before declining to 3.638 bb in “short / sell” positions on 1/15/2019. Typical risk management-related grain futures transactions and positions of commercial grain elevators and/or farmer hedgers would fall into this “short position” category. Commercial hedger “long / buy” positions have ranged from 2.152 bb to 2.238 bb during the same period, with 2.222 bb in “long / buy” positions on 1/15/2019. Typical risk management grain futures transactions and positions of commercial grain processors, ethanol plants, and livestock feeders would fall in this “long position” category.
- Managed Money (Specs) Long & Short Positions: The aggregate “short / sell” position of CME Corn futures management money (speculative) traders been increasing moderately since early December 2018 (Figure 3c). Total speculator’s “short / sell” positions have ranged from 0.824 bb to 1.109 bb during the 12/4/2018 to 1/15/2019 period, with the largest amount of 1.109 bb in “short / sell” positions at the end of the period on 1/15/2019. Speculator’s “long / buy” positions have also declined during this period, ranging from 1.187 bb to 1.446 bb during the same period, with the smallest amount of 1.187 bb in “long / buy” positions on 1/15/2019 at the end of the period.
4C – Corn Cash Price & Basis Trends in Kansas
In Western Kansas on Wednesday, February 13th cash corn bids at major grain elevators ranged from $3.44 ($0.35 per bushel under MAR 2019 futures) to $3.81 ($0.02 basis over futures), and ranged from $3.35 ¾ ($0.43 under CME MAR 2019 corn) to $3.58 ¾ ($0.20 under) in Central Kansas. These prices are much higher than when corn bids statewide had fallen to $2.66-$2.96 /bu on December 23, 2016.
Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.798 ¾ /bu on February 13th, with basis bids being $0.00 level with MAR 2019 corn futures. These eastern Kansas cash corn prices are up from the range of $3.26-$3.28 per bushel on 12/23/2016. Cash corn bids at Kansas ethanol plants on Wednesday, December 13th ranged from $3.77 ¼ /bu ($0.01 under MAR) to $3.98 ¼ ($0.20 over MAR 2019) – continuing to indicate strength in ethanol demand for corn in Kansas and nationwide.
5) USDA & KSU S-D & Price Forecasts for “Current” MY 2018/19
The USDA’s projection and three alternative KSU-Scenarios to the USDA’s forecast for U.S. corn supply-demand and prices are presented in what follows for “current” MY 2018/19 (Tables 1-1a & Figures 12-12a). 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 yet in “current” MY 2018/19. Probability-weights are added to reflect judgements about how likely each scenario is to occur in “current” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.
Scenario AMY 2018/19 – USDA WASDE Corn S-D Scenario for “Current” MY 2018/19: (75% prob.): Assumptions: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.465 bb food, seed & industrial use; 2.450 bb exports; 5.375 bb feed & residual use; 14.865 bb total use; 1.735 bb ending stocks; 11.67% Stocks/Use; & $3.60 /bu U.S. corn average price;
Scenario BKSU “Lower U.S. Corn Exports” Scenario for “Current” MY 2018/19 (10% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.451 bb food, seed & industrial use; 2.350 bb exports (down 100 mb vs USDA’s 2.450 bb); 5.375 bb feed & residual use; 14.765 bb total use (down 100 mb vs USDA’s 15.030 bb); 1.835 bb ending stocks (up 100 mb vs USDA’s 1.735 bb); 12.43% Stocks/Use (up vs USDA’s 11.67% S/U); & $3.40 /bu U.S. corn average price (down vs USDA’s $3.60 per bushel);
Scenario CKSU “Higher U.S. Corn Exports” Scenario for “Current” MY 2018/19 (10% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.465 bb food & industrial use; 2.550 bb exports (up 100 mb vs USDA’s 2.450 bb); 5.375 bb feed & residual use; 14.965 bb total use (up 100 mb vs USDA’s 14.865 bb); 1.635 bb ending stocks (down 100 mb vs USDA’s 1.735 bb); 10.93% Stocks/Use (down vs USDA’s 11.67% S/U); & $3.75 /bu U.S. corn average price (up vs USDA’s $3.60 per bushel).
Scenario DKSU “Higher Ethanol Use of U.S. Corn” Scenario for “Current” MY 2018/19 (5% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.675 bb ethanol use (up 100 mb vs USDA’s 5.575 bb); 1.450 bb food & industrial use; 2.450 bb exports; 5.500 bb feed & residual use; 14.965 bb total use (up 100 mb vs USDA’s 5.575 bb); 1.635 bb ending stocks (down 100 mb vs USDA’s 1.735 bb); 10.93% Stocks/Use (down vs USDA’s 11.67% S/U); & $3.75 /bu U.S. corn average price (up vs USDA’s $3.60 per bushel).
6) USDA Preliminary Market Forecast for “Next Crop” MY 2019/20
An adjusted version of USDA’s projection for U.S. corn supply-demand and prices for “next crop” MY 2019/20 (Table 1a). These projections show the USDA’s projections for U.S. corn in the “next” marketing year, based on the U.S. corn harvest in year 2019, with the marketing year beginning on September 1, 2019 and lasting through August 31, 2020. Liberty has been taken to make minor adjustments to the USDA’s projections following from the results of the December 11, 2018 USDA WASDE report.
Scenario AUSDA December 11th WASDE Corn S-D Scenario for “Next Crop” MY 2019/19: (75% prob.): Assumptions are: 92.000 ma planted (up 2.860 ma vs MY 2018/19), 84.600 ma harvested (up 2.833 ma vs MY 2018/19), 176.5 bu/ac yield (up 0.1 bu/ac vs MY 2018/19), 14.930 bb production (up 510 mb vs MY 2018/19), 16.715 bb total supplies (up 115 mb vs MY 2018/19), 5.700 bb ethanol use (up 125 mb vs MY 2018/19), 1.459 bb food & industrial use (up 25 mb vs MY 2018/19), 2.425 bb exports (down 25 mb vs MY 2018/19), 5.575 bb feed & residual use (up 200 mb vs MY 2018/19), 15.190 bb total use (up 325 mb vs MY 2018/19), 1.529 bb ending stocks (down 206 mb vs MY 2018/19), 10.07% Stocks/Use (down vs 11.67% S/U in MY 2018/19), & $3.90USDA /bu U.S. corn average price (up $0.30 /bu vs MY 2018/19);
7) World Corn Supply-Demand – Both With & Without China
World Production: World corn production of 1,099.61 million metric tons (mmt) is projected for “current” MY 2018/19, up 2.2% from 1,075.61 mmt in “old crop” MY 2017/18, but down 2.0% from the record high of 1,122.41 mmt in MY 2016/17 (Figures 14). The “current” 2018/19 marketing year began September 1, 2018 and continues through August 31, 2019.
Forecast corn production in Argentina of 46.00 mmt in 2019 would be a “rebound” from the short crop of 32.00 mmt projected in 2018, and above 41.00 mmt produced in 2017. Similarly, production in Brazil of 94.50 mmt in 2019 would also be a “rebound” from the short crop of 82.00 mmt projected in 2018, but down from 98.50 mmt in 2017. A large portion of the corn harvests for Argentina and Brazil occur in the later half of September 1st – August 31st marketing years, i.e., February through August. For “current” MY 2018/19, the Argentina and Brazil corn harvests will be during February-August, 2019.
World Total Supplies: World corn total supplies of a record high 1,440.42 mmt in “current” MY 2018/19 are forecast to be up 1.0% from 1,425.85 mmt in “old crop” MY 2017/18, and up 0.5% from the previous record high of 1,433.79 mmt in MY 2016/17. The estimates of World corn total supplies were adjusted approximately 14% higher in the November 8th WASDE report to changes in Chinese domestic corn supply-demand balance sheets – with these adjustments carrying through to the December 11th and February 8, 2019 reports.
World Exports: World corn exports of a record high 167.36 mmt are projected for “current” MY 2018/19, up 14.4% from 146.29 mmt in “old crop” MY 2017/18, and up 4.6% from the previous record high of 160.05 mmt in MY 2016/17 (Figure 14).
World Ending Stocks (% Stocks/Use): Projected World corn ending stocks of 309.78 mmt (27.40% S/U) in “current” MY 2018/19 are down from 340.81 mmt (31.41% S/U) in “old crop” MY 2017/18, down from the record high 350.24 mmt (32.32% S/U) in MY 2016/17, and 311.38 mmt (31.12% S/U) in MY 2015/16 (Figures 14 & 15a). Projected Foreign (Non-U.S.) corn ending stocks of 265.70 mmt (28.87% S/U) in “current” MY 2018/19, are down from 286.44 mmt (33.48% S/U) in “old crop” MY 2017/18, and is down from 291.99 mmt (33.50% S/U) in MY 2016/17.
Just as for total supplies, changes in Chinese corn ending stocks increased World corn ending stocks estimates by 93.0% in the November 2018 USDA WASDE report, and increased World ending stocks-to-use estimates from 14.39% in October 2018 up to 27.16% and 27.30% in the November 8th and December 11th WASDE reports, respectively, and to 27.40% in the February 8, 2019 WASDE.
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 101.97 mmt (11.95% S/U) in “current” MY 2018/19, down from 118.24 mmt (14.39% S/U) in “old crop” MY 2017/18, and down from 127.23 mmt (15.82% 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 56.4% lower or “tighter” (i.e., 11.95% S/U for the “World-Less-China” versus 27.40% S/U for the “World” overall in “current” MY 2018/19).
World versus China Corn Ending Stocks: After the changes in World corn supply-demand reported in the November 8th WASDE report, which were carried forward into the December 11th and February 8, 2019 reports, the USDA showed that estimates of Chinese ending stocks of corn as proportion of the World total have increased significantly from the October 2018 WASDE report. The updated figures show the percent of World corn stocks held by China to be 61.91% in MY 2014/15, 68.09% in MY 2015/16, 63.67% in MY 2016/17, 65.29% in “old crop” MY 2017/18, and now are projected to be 67.08% in “current” MY 2018/19.
While China’s percent of World corn stocks is estimated to have increased with these new USDA figures, “World-Less-China” percent corn ending stocks-to-use are estimated to be 11.95% in “current” MY 2018/19, the lowest percentage in 6 years (Figures 15a-b). “World-Less-China” corn stocks-to-use was 9.5%-9.9% during the years of MY 2011/12 – MY 2012/13, but increased to the range of 12.2% to 13.8% during the MY 2013/14 through MY 2015/16 period. Then after a high of 15.82% in MY 2016/17, “World-Less-China” corn ending stocks-to-use declined to 14.39% in “old crop” MY 2017/18, and to a projected level of 11.95% in “current” MY 2018/19. This decline supports the idea that corn stocks outside of China are “tightening up” – and that the overall World corn market has an increasing possibility of seeing higher prices in the future if these trends continue.
7) Final Thoughts re: Corn Market Focus in “Current” MY 2018/19
From mid-February 2019 through May 2019, the “narrative focus” of the corn market will likely be on corn the later part of the planting season in southern areas and early season development in Argentina and Brazil. It is possible if not likely that news about the pace of usage of U.S. domestic corn and other feedgrains and the possibility of excessive moisture delaying U.S. corn planting progress will also have the attention of the U.S. corn markets during February-May 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 progress. The corn market would 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 “current” MY 2018/19, U.S. producers will be making marketing decisions under conditions of “uncertainty” as what may be profitable seasonal pricing opportunities present themselves. For those with a “risk averse” perspective on corn price risk management, there will likely 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 at harvest during fall 2019. This “early action” approach contrasts to those corn producers who are less worried (i.e., “less risk averse”) about being in what is essentially a “speculative post-harvest storage” position in the corn market – i.e., holding unpriced corn in storage longer while waiting for the possibility of a better price that may come later.
The key point to consider is that the likelihood exists of there being greater price strength in U.S. corn markets through the Winter and Spring 2019 months than many may now be taking into account. Any such optimism in the U.S. corn market depends on the likelihood of 1) crop production problems for South American corn in 2019, b) the strong domestic demand base that seems to exist for the U.S. corn crop in “current” MY 2018/19, and c) the growing possibility of delayed planting for U.S. corn – particularly in the central, northern, and eastern parts of the U.S. Corn Belt.