KSU Corn Market Outlook in October 2016: Strong Demand holds Kansas Corn Prices Above Marketing Loan at Harvest

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 October 12, 2016 USDA Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports.

Following is a summary of the article on “Corn Market Outlook in October 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/grain-marketing/grain-market-outlook-newsletter/corn-market-outlook-october-2016

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Summary

Overview

Since the USDA’s October 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, DEC 2016 CME corn futures has trended higher from a close of $3.37 per bushel on the day of the report, to a high of $3.58 ¾ on October 14th, before closing at $3.53 ¾ on October 18th with nearly 50% of the U.S. corn harvest complete.  The USDA’s forecast of a record large 2016 U.S. corn crop over 15 billion bushels (bb) and ending stocks of near 2.3 bb have continued to be the primary focus of the U.S. corn market.

Cash Corn Markets in Kansas vs Marketing Loan Rates

Cash corn prices in Kansas have declined to near or below $3.00 per bushel, but have not fallen as low as marketing loan rates.  For example, on October 19th, cash corn prices near Salina, Kansas in the central part of the state ranged from $2.81 to $2.95 per bushel –above the Saline County marketing loan rate of $2.05 per bushel.  Similarly, cash corn prices near Garden City in southwest Kansas ranged from $3.02 to $3.05 per bushel – above the Finney County marketing loan rate of $2.19 per bushel.  Although fall harvest is approximately 75%+ completed in Kansas with the situation of large supplies and tight storage availability to deal with in local grain markets, it is an encouraging signal for corn demand that cash corn prices have not fallen down to loan rate – price support levels.

Other Corn Market Factors in 2017

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 “new crop” 2016 U.S. corn in domestic U.S. ethanol production and livestock feeding, 3) at least moderate strength in U.S. corn exports – driven partly by a poor harvest and lack of exportable supplies in Brazil in 2016 as well as other World corn market factors, and 4) the always present possibility of broader U.S. and Foreign economic and/or financial system disruptions impacting grain, energy, and other commodity markets in later 2016 and 2017.

For example, unanticipated U.S. financial policy announcements by the U.S. Federal Reserve could affect U.S. interest rates which could affect U.S. corn exports.  Also, World geo-political events could provide an unanticipated “shock” to U.S. and World energy and grain markets – with the impact on the direction of U.S. and World corn markets being difficult to anticipate.

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

With USDA projections of 2016 U.S. corn plantings of 94.490 ma (up 6.491 ma from 2015), harvested acres of 86.836 ma (up 6.087 ma from 2015), record high projected yields of 173.4 bu/ac (vs 168.4 bu/ac in 2015 and the previous record high of 171.0 bu/ac in 2014), 2016 U.S. corn production is forecast to be a record high 15.057 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 16.845 bb (record high), total use of 14.525 bb (record high), and projected ending stocks of 2.320 bb (15.97% S/U) – up from 1.738 bb (12.72% 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 $2.95-$3.55 (midpoint = $3.25 /bu) – being down from $3.61 /bu for “old crop” MY 2015/16. This scenario is given a 70% likelihood of occurring by KSU Extension Ag Economist D. O’Brien.

Alternative KSU Forecasts for “New Crop” MY 2016/17

Two alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “new crop” MY 2016/17, each gauging the likelihood of lower U.S. corn yields and production than projected by the USDA in the October 12th USDA WASDE report.

KSU Scenario A) “172.5 bu/ac – 14.979 bb” Scenario (25% probability) assumes: 94.490 ma planted, 86.836 ma harvested, 172.5 bu/ac yield, 14.979 bb production, 16.717 bb total supplies, 14.525 bb total use, 2.192 bb ending stocks, 15.09% S/U, & $3.35 /bu U.S. corn average price for “new crop” MY 2016/17;

KSU Scenario B) “171.0 bu/ac – 14.849 bb” Scenario (5% probability) assumes: 94.490 ma planted, 86.836 ma harvested, 171.0 bu/ac yield, 14.849 bb production, 16.637 bb total supplies, 14.525 bb total use, 2.112 bb ending stocks, 14.54% S/U, & $3.45 /bu U.S. corn average price for “new crop” MY 2016/17;

World Corn Supply-Demand

Record high World corn production of 1,025.7 million metric tons (mmt) is projected for “new crop” MY 2016/17, up from 959.1 mmt in “old crop” MY 2015/16, and up from 1,014.4 mmt in MY 2014/15.

Record high World corn total supplies of 1,235.7 mmt are projected for “new crop” MY 2016/17, up from 1,168.1 mmt in “old crop” MY 2015/16, and from 1,189.7 mmt in MY 2014/15.  World corn exports of 143.8 mmt are projected for “new crop” MY 2016/17, up from 119.5 mmt in “old crop” MY 2015/16, and from 141.7 mmt in MY 2014/15.  Projected World corn ending stocks of 216.8 mmt (21.3% S/U) in “new crop” MY 2016/17 are up from 210.9 mmt (21.9% S/U) in “old crop” MY 2015/16, and from 208.9 mmt (21.3% S/U) in MY 2014/15.  Although World corn ending stocks are projected to be a record high in “new crop” MY 2016/17 at 216.8 mmt, World corn percent ending stocks-to-use in “new crop” MY 2016/17 are forecast to actually decline to 21.3% – indicative of expected continued strong World demand for corn at low prices – especially in Europe where grain production has been hampered by extreme weather conditions.

Brazil Corn Supply-Demand

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 support for U.S. corn exports and even ethanol production (via exports). However, expectations of a record large 2016 U.S. corn crop have had a predominant negative impact on U.S. corn market prices through late summer and early fall.  Brazilian corn production is forecast by the USDA to rebound back to 83.5 mmt in MY 2016/17 (2017 production).  Uncertainty about Brazilian corn production prospects in 2017 could be a major factor impacting U.S. and World corn prices in the coming spring and summer months of 2017.

China Corn Supply-Demand

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.  A major focus in World corn markets is on the size of Chinese ending stocks and on recent changes in China’s domestic corn stock management policies.  Ending stocks of corn in China are projected to be 103.7 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 100.5 mmt (49.7% S/U) in MY 2014/15.  Over the last three marketing years, percent ending stocks-to-use of corn for China ranging from 49.7% to 50.9% are the highest since MY 2002/03 (51.6%).  During the interim MY 2003/04 to MY 2013/14 period, Chinese corn percent ending stocks-to-use averaged 30.5%, ranging from 25.2% to 39.1%.

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