KSU Corn Market Outlook in Mid June 2016: “Sizing Up” Corn Market Possibilities in 2016

This article provides an analysis of U.S. and World corn supply-demand factors and price prospects for both the “new crop” 2016/17 marketing year following the USDA’s June 10, 2016 USDA Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports.

Following is a summary of the article on “Corn Market Outlook in Mid June 2016″ with the full article and accompanying analysis soon to be available on the KSU AgManager website (www.AgManager.info) 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 June 10th World Agricultural Supply and Demand Estimates (WASDE) report, JULY 2016 CME corn futures have trended sideways – trading in a range of $4.20-$4.39 per bushel and closing at $4.21 ¼ on June 20th.  Although the USDA has forecast a fourth consecutive large U.S. corn crop in the 13.6 to 14.4 billion bushel (bb) range for 2016 along with sizable foreign coarse grain crops in the “new crop” 2016/17 marketing year, corn futures have risen above $4.00 in May-June 2016 due to a) significant corn production problems in Brazil (too dry in spots) resulting in higher domestic Brazilian prices and reduced export prospects, b) larger than expected U.S. corn domestic usage in response to low U.S. and World corn prices during January-early June, and c) worries about meterologist’s forecasts of hot weather during late June – August 2016 that could damage 2016 U.S. corn production prospects.

The 2016 USDA NASS Acreage report to be released on June 30th will provide updated projections of 2016 U.S. corn  planted and harvested acres, and may be a source of volatility for U.S. corn markets if results vary markedly from pre-report market expectations.

Other Factors that Could Affect the Corn Market

Other market factors to consider that could affect the U.S. corn market in 2016 include: 1) declining U.S. farmer resistance to selling 2015 crop corn at lower than hoped for 2016 cash corn prices to-date as both winter wheat or fall crop harvests approach requiring both commercial and on-farm storage space, 2) continued stronger-than-anticipated use of 2015 crop U.S. corn in ethanol production, livestock feeding or exports resulting from low U.S. feedgrain prices and moderating U.S. dollar values (exports), and 3) the possibility of broader U.S. and Foreign economic and financial system disruptions impacting grain, energy, and other commodity markets – such as unanticipated U.S. financial policy announcements by the U.S. Federal Reserve affecting U.S. interest rates, or crucial foreign economic occurrences such as the European Union vote on British membership.

For the early part of “current” 2015/16 marketing year the high value of the U.S. dollar and prospects for a large 2016 South American corn crop were significant limiting factors for U.S. corn exports – although developing crop problems in Brazil and declines in the value of U.S. dollar since early February 2016 have coincided with improved U.S. corn exports in May-June 2016.

USDA Supply-Demand & Prices for “Current” MY 2015/16

The USDA made several changes to the U.S. corn supply-demand balance sheet for “current crop” MY 2015/16.  While the estimate of 2015 U.S. corn production of 13.601 billion bushels (bb) was unchanged, and total supplies of 15.392 bb for MY 2015/16 were up 5 million bushels or ‘mb’ due to increased imports.  Total use is projected to be 13.685 bb – up 100 million bushels (mb) due to a 100 mb increase in projected exports – up to 1.825 bb.  Ethanol use (5.250 bb), non-ethanol Food, Seed, and Industrial (FSI) use (1.360 bb), and feed and residual use (5.250 bb) were all unchanged.

Ending stocks are forecast to be down 95 mb to 1.708 bb (12.48% S/U) in “current” MY 2015/16 – down from 1.731 bb (12.59% S/U) in MY 2014/15, but up from 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 $3.60-$3.80 /bu. ($3.70 midpoint) versus $3.70 in MY 2014/15, $4.46 in MY 2013/14, and $6.89 (record high) in MY 2012/13.

USDA Supply-Demand Forecast for “New Crop” MY 2016/17

The USDA projected that 2016 U.S. corn plantings would 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 forecast to be a record high 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 supplies of 16.178 bb (record high), total use of 14.170 bb (record high), and projected ending stocks of 2.008 bb (14.17% S/U) – up from 1.708 bb (12.48% S/U) in “current crop” MY 2015/16 and the highest since 2.114 bb (19.83% S/U) in MY 2004/05 – U.S. corn prices are projected by the USDA to be in the range of $3.20-$3.80 (midpoint = $3.50 /bu) – being down from the $3.70 /bu midpoint estimate for “current” MY 2015/16. This scenario is given a 20% likelihood of occurring by KSU.

KSU Forecasts 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 million acre (ma) downward adjustment in 2016 U.S. corn planted acres from the USDA’s March 31st Prospective Plantings report.

A) KSU “Lower Acres – Trend Yield” Scenario (35% probability) assumes: 92.601 ma planted, 84.508 ma harvested, 164.5 bu/ac trend yield, 13.902 bb production, 15.745 bb total supplies, 13.762 bb total use, 1.983 bb ending stocks, 14.41% S/U, & $3.45 /bu U.S. corn average price for “new crop” MY 2016/17;

B) KSU “Lower Acres – Moderate Drought” Scenario (25% prob.) assumes: 92.601 ma planted, 84.508 ma harvested, 158.0 bu/ac yield, 13.352 bb production, 15.200 bb total supplies, 13.622 bb total use, 1.578 bb ending stocks, 11.58% S/U, & $3.95 /bu U.S. corn price;  and

C) KSU “Lower Acres – Serious Drought” Scenario (20% prob.) assumes: 92.601 ma planted, 84.508 ma harvested, 150.0 bu/ac yield, 12.676 bb production, 14.529 bb total supplies, 13.257 bb total use, 1.270 bb ending stocks, 9.58% S/U, & $4.45 /bu U.S. corn price “new crop” MY 2016/17.

World Corn Supply-Demand

World corn production of 1,011.8 million metric tons (mmt) is projected for “new crop” MY 2016/17, up from 966.4 mmt in “current crop” MY 2015/16, and down marginally from 1,013.5 mmt in MY 2014/15.

World corn total supplies of 1,218.2 mmt are projected for “new crop” MY 2016/17, up from 1,174.8 mmt in “current crop” MY 2015/16, and up from 1,189.2 mmt in MY 2014/15.

World corn exports of 133.1 mmt are projected for “new crop” MY 2016/17, up from 120.6 mmt in “current crop” MY 2015/16, but down from 141.7 mmt in MY 2014/15.

Projected World corn ending stocks of 205.1 mmt (20.25% S/U) in “new crop” MY 2016/17 are down from 206.45 mmt (21.3% S/U) in “current crop” MY 2015/16, and from the record high of 208.4 mmt (21.25% S/U) in MY 2014/15.

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