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