KSU Corn Market Outlook in Early June 2016: Comparing “Likely” vs “Possible” Corn Market Outcomes in 2016

This article provides an analysis of U.S. and World corn supply-demand factors and price prospects for both the “current crop” 2015/16 and “new crop” 2016/17 marketing years following theUSDA’s May 10, 2016 USDA Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports will be available on June 1st on the KSU AgManager website:  http://www.agmanager.info/default.asp

Following is a summary of the article on “Corn Market Outlook in Early June 2016″ with the full article and accompanying analysis soon to be available on the KSU AgManager website at the following web address: http://www.agmanager.info/marketing/outlook/newletters/Corn.asp

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Summary

Market Overview

Since the USDA’s May 10th World Agricultural Supply and Demand Estimates (WASDE) report, corn futures have trended higher due to U.S. planting season and crop production worries as well as improved U.S. corn exports.  With a fourth consecutive large U.S. corn crop in the 13.6 to 14.4 billion bushel (bb) range projected for 2016 along with sizable foreign coarse grain crops in the “current” 2015/16 marketing year, it will be difficult for corn futures prices to rise to $4.25-$4.50+ by June-July 2016 unless a) significant corn production problems are proven to have occurred in either Argentina (too wet in places) or Brazil (too dry in spots), b) larger than expected U.S. corn usage occurs in response to low U.S. and World corn prices during the June-August 2016 quarter, and/or c) crop development and production problems emerge for the 2016 U.S. corn crop during June-July in the form of hot and dry weather – leading to reduced 2016 corn production prospects.

Market Factors to Consider

Market factors such as a) potential future economic and financial system disruptions impacting grain, energy, and other commodity markets, b) U.S. farmer resistance to selling at low late-May and June 2016 cash corn prices, and c) concerns about possible “El Nino” or “El Nino-La Nina transition”- related weather patterns in spring-summer 2016 with an eye toward their possible negative impacts on 2016 crop production, could each still impact corn market prices through summer-fall 2016.  However, farmer resistance to “old crop” cash sales will be forced to give way in coming months as the 2016 U.S. corn crop develops and approaches harvest in coming months.  Also, low feedgrain prices have resulted in lower input costs for U.S. and Foreign livestock feeding and bioenergy users – leading to strong domestic and foreign feedgrain usage and providing underlying support for U.S. corn exports.  In the “current” 2015/16 marketing year the high value of the U.S. dollar and prospects for a large 2016 South American corn crop have been significant limiting factors for U.S. corn exports – although the U.S. dollar has been trending lower since early February 2016 – coinciding with moderately improved U.S. corn exports.

USDA Estimate for “Current Crop” MY 2015/16

The USDA made several changes to the U.S. corn supply-demand balance sheet for “current crop” MY 2015/16 – with 2015 U.S. corn production of 13.601 bb, and total supplies of 15.387 bb for MY 2015/16 (up 5 million bushels or ‘mb’ due to increased imports).  Total use is projected to be 13.585 bb (up 64 mb).  Ethanol use was projected to be 5.250 bb, with non-ethanol Food, Seed, and Industrial (FSI) use of 1.360 bb (down 11 mb), exports of 1.725 bb (up 75 mb), and feed and residual use of 5.250 bb.  Ending stocks are forecast to be down 59 mb to 1.803 bb (13.27% S/U) in “current” MY 2015/16 – up from 1.731 bb (12.6% S/U) in “old crop” MY 2014/15, and 1.232 bb (9.2% S/U) in MY 2013/14.  U.S. corn average cash prices are forecast to be in the range of $3.50-$3.70 /bu. ($3.60 midpoint) versus $3.70 in “old crop” MY 2014/15, $4.46 in MY 2013/14, and $6.89 (record high) in MY 2012/13.

USDA Forecast for “New Crop” MY 2016/17

The USDA provided it’s first WASDE report forecast “new crop” MY 2016/17 forecast for U.S. corn – relying on the USDA March 31st Prospective Planting report planted acreage forecast and a number of other harvested acreage and yield assumptions.   Projected 2016 U.S. corn plantings equal 93.601 ma – up 5.602 ma from 2015.  Forecast 2016 harvested acres of approximately 85.893 ma would be up 5.144 ma vs 2015.  With projected yields of 168.0 bu/ac, 2016 U.S. corn production is projected to be a record 14.430 bb – up from 13.601 bb in 2015, 14.216 bb in 2014, and 13.829 bb in 2013.   With forecast “new crop” MY 2016/17 total use of 14.120 bb (record high), and projected ending stocks of 2.153 bb (15.24% S/U) – up from 1.803 bb (13.27% S/U) in “current crop” MY 2015/16 – U.S. corn prices are projected by the USDA to be in the range of $3.05-$3.65 (midpoint = $3.35 /bu) – with the midpoint of $3.35 being down from the $3.60 /bu midpoint estimate for “current” MY 2015/16. This scenario is given a 40% likelihood of occurring by Kansas State University.

KSU Forecast Scenarios for “New Crop” MY 2016/17

Three alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “new crop” MY 2016/17, with each assuming a 1.0 ma downward adjustment in 2016 U.S. corn planted acres from the USDA’s March 31st Prospective Plantings report.

A) KSU “trend yield” scenario (30% probability) assumes the following for “new crop” MY 2016/17: 92.601 ma planted, 84.545 ma harvested, 164.5 bu/ac trend yield, 13.908 bb production, 15.751 bb total supplies, 13.637 bb total use, 2.114 bb ending stocks, 15.50% S/U, & $3.30 /bu U.S. corn average price;

B) KSU “moderate drought” scenario (20% prob.) assumes 92.601 ma planted, 84.545 ma harvested, 158.0 bu/ac yield, 13.358 bb production, 15.206 bb total supplies, 13.497 bb total use, 1.709 bb ending stocks, 12.66% S/U, & $3.75 /bu U.S. corn price;  and

C) KSU “serious drought” scenario (10% prob.) assumes 92.601 ma planted, 84.545 ma harvested, 150.0 bu/ac yield, 12.682 bb production, 14.535 bb total supplies, 13.257 bb total use, 1.278 bb ending stocks, 9.6% S/U, & $4.40 /bu U.S. corn price.

World Corn Supply-Demand

World total supplies of 1,011.1 million metric tons (mmt) are projected for “new crop” MY 2016/17, up from 1,176.7 mmt in “current crop” MY 2015/16, and up from 1,188.7 mmt in MY 2014/15.  Projected World corn ending stocks of 207.0 mmt (20.5% S/U) in “new crop” MY 2016/17 are up from 207.87 mmt (21.5% S/U) in “current crop” MY 2015/16, and from 207.88 mmt (21.2% S/U) in MY 2014/15.

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