KSU Corn Market Outlook in September 2016: Comparing “Likely” USDA vs “Possible” KSU 2016 Corn Market Outcomes

This article provides an analysis of U.S. and World corn supply-demand factors and price prospects for the “new crop” 2016/17 marketing year following the USDA’s September 12, 2016 USDA Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports is available on the KSU AgManager website:  http://www.agmanager.info/default.asp

Following is a summary of the article on “Corn Market Outlook in September 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/grain-marketing/grain-market-outlook-newsletter

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Summary

Overview

Since the USDA’s September 12th World Agricultural Supply and Demand Estimates (WASDE) report, DEC 2016 CME corn futures first trended lower from a close of $3.39 ½ per bushel on the day of the report, to a low of $3.26 ½ on September 14th, before trending back higher to close at $3.40 on September 22nd with the bulk of fall harvest approaching.   The USDA’s continued forecast of a record large 2016 U.S. corn crop over 15 billion bushels (bb) and ending stocks of near 2.4 bb have continued to be the focus of the U.S. corn market.

Cash corn prices in Kansas have declined below $3.00 per bushel, but have not yet fallen to the marketing loan rate.  For example, on September 22nd, cash corn prices near Salina, Kansas in the central part of the state ranged from $2.63 to $2.80 per bushel – still above the Saline County marketing loan rate of $2.05 per bushel.  Similarly, cash corn prices near Garden City in southwest Kansas ranged from $2.80 to $2.98 per bushel – above the Finney County marketing loan rate of $2.19 per bushel.  When fall harvest begins in earnest it is possible that cash prices could fall to the loan rate in these areas due to tight local commercial storage.

Other market factors to consider that could affect the U.S. corn market in what remains of 2016 through mid-2017 include:

1) the pace and timing of U.S. farmer marketing of the 2016 corn crop – much of which will be placed in storage after fall harvest,

2) anticipation of continued strong use of carryover 2015 and new 2016 crop U.S. corn in domestic U.S. ethanol production and livestock feeding,

3) at least moderate strength in U.S. corn exports – driven largely by a poor harvest and lack of exportable supplies in Brazil in 2016, and

4) the possibility of broader U.S. and Foreign economic and/or financial system disruptions impacting grain, energy, and other commodity markets.  For example, unanticipated U.S. financial policy announcements by the U.S. Federal Reserve could affect U.S. interest rates, or geo-political events could occur that would “shock” World energy and grain markets.

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

With USDA projections of 2016 U.S. corn plantings of 94.148 ma (up 6.149 ma from 2015), harvested acres of 86.550 ma (up 5.801 ma from 2015), record high projected yields of 174.4 bu/ac (vs 168.4 bu/ac in 2015 and the current record high of 171.0 bu/ac in 2014), 2016 U.S. corn production is forecast to be a record high 15.093 bb – up from 13.601 bb in 2015, the current record of 14.216 bb in 2014, and 13.829 bb in 2013.

With forecast “new crop” MY 2016/17 total supplies of 16.859 bb (record high), total use of 14.475 bb (record high), and projected ending stocks of 2.384 bb (16.47% S/U) – up from 1.716 bb (12.54% S/U) in “old crop” MY 2015/16 and the highest since 4.259 bb (54.90% S/U) in MY 2004/05 – U.S. corn prices are projected by the USDA to be in the range of $2.90-$3.50 (midpoint = $3.20 /bu) – being down from $3.60 /bu for “old crop” MY 2015/16. This scenario is given a 50% likelihood of occurring by KSU Extension Ag Economist D. O’Brien.

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 lower U.S. corn yields and production than the September 12th USDA WASDE report

KSU Scenario A) “Minor Crop Problems – 14.9 bb” Scenario (30% probability) assumes: 94.148 ma planted, 86.550 ma harvested, 172.0 bu/ac yield, 14.887 bb production, 16.653 bb total supplies, 14.450 bb total use, 2.203 bb ending stocks, 15.25% S/U, & $3.35 /bu U.S. corn average price for “new crop” MY 2016/17; 

KSU Scenario B) “Moderate Crop Problems – 14.5 bb” Scenario (15% probability) assumes: 94.148 ma planted, 86.550 ma harvested, 168.0 bu/ac yield, 14.540 bb production, 16.306 bb total supplies, 14.344 bb total use, 1.962 bb ending stocks, 13.68% S/U, & $3.50 /bu U.S. corn avg. price for “new crop” MY 2016/17;

KSU Scenario C) “More Serious Crop Problems – 14.2 bb” Scenario (5% probability) assumes: 94.148 ma planted, 86.550 ma harvested, 164.0 bu/ac yield, 14.194 bb production, 15.190 bb total supplies, 14.239 bb total use, 1.721 bb ending stocks, 12.09% S/U, & $3.80 /bu U.S. corn avg. price for “new crop” MY 2016/17;

World Corn Supply-Demand:

World corn production of 1,026.6 million metric tons (mmt) is projected for “new crop” MY 2016/17, up from 959.0 mmt in “old crop” MY 2015/16, and up from 1,013.6 mmt in MY 2014/15.

World corn total supplies of 1,235.9 mmt are projected for “new crop” MY 2016/17, up from 1,167.3 mmt in “old crop” MY 2015/16, and up from 1,188.9 mmt in MY 2014/15.  World corn exports of 139.8 mmt are projected for “new crop” MY 2016/17, up from 119.2 mmt in “old crop” MY 2015/16, but down from 141.7 mmt in MY 2014/15.  Projected World corn ending stocks of 219.5 mmt (21.6% S/U) in “new crop” MY 2016/17 are up from 209.25 mmt (21.8% S/U) in “old crop” MY 2015/16, and from 208.3 mmt (21.2% S/U) in MY 2014/15.

Brazil Corn Production Trends

Brazil corn production in “old crop” MY 2015/16 (1st crop harvested in January-May 2016, 2nd crop harvested in May-August) is estimated to be 67.0 mmt, down 18.0 mmt (down 21.2%) from 85.0 mmt in MY 2014/15.  This shortfall in Brazilian corn production in 2016 has provided some support for U.S. corn exports and even ethanol production (via exports). But expectations of a record large 2016 U.S. corn crop have had a predominant negative impact on U.S. corn market prices to date.  Brazilian corn production is forecast by the USDA to rebound back to 82.5 mmt in MY 2016/17 (2017 production).

China Corn Production & Ending Stocks Trends

China corn production in “new crop” MY 2016/17 (harvested in September-October 2016) is estimated to be 216.0 mmt, down 8.6 mmt (down 3.8%) from 224.6 mmt in MY 2015/16, but marginally higher than 215.65 mmt in MY 2014/15.

Most of the focus in World corn markets is on Chinese ending stocks.  Ending stocks of corn in China are projected to be 103.65 mmt (45.9% SU) in “new crop” MY 2016/17, down from 110.7 mmt (50.9% S/U) in “old crop” MY 2015/16, but up from 110.5 mmt (49.7% S/U) in MY 2014/15.

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