An analysis of U.S. and World Corn supply-demand factors and “Next Crop” 2017/18 Marketing Year supply-demand and price prospects is provided in the following article summary. This information follows the USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports on November 9, 2017.
A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:
Following is a summary of the article on “Corn Market Outlook in Mid-November 2017″
Since the USDA’s November 9th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, DEC 2017 CME corn futures prices have traded first lower, and then higher to partially recover their initial decline. During the summer months of 2017 DEC 2017 corn futures reached as high as $4.17 ¼ per bushel on July 11th, but then declined to a low of $3.44 ¼ on August 31st. After a high of $3.62 on September 6th, DEC 2017 corn futures have trended sideways-to-lower throughout the remainder of September, October to a low on November 16th of $3.36 ¼, before closing at $3.45 on November 21st.
In its’ November 9th USDA Crop Production report, the USDA projected 2017 U.S. corn yields to average a record high 175.4 bu/ac, with 2017 U.S. corn production at 14.578 billion bushels (bb) – both up substantially from pre-report trade expectations. Since the November 9th USDA reports, market expectations have reinforced a consensus consistent with the USDA projection of a “large supply – low price” scenario, leaving DEC 2017 corn futures to trade in the range of $3.35-$3.55 per bushel during the 2017 harvest period. The USDA will provide updated 2017 U.S. corn production numbers in its upcoming January 12, 2018 USDA Crop Production report.
It continues to be true that any significant corn futures or cash market price rallies through winter 2017-2018 on into early Spring 2018 are likely to be limited by ending stocks of U.S. corn in the 2.250-2.500 bb range, coupled with ending stocks-to-use of 16.0%-17.5% for the 2017/18 marketing year. However, in Spring-early Summer 2018 the U.S. corn market is likely again to have to weigh the annual risk of weather-limiting 2018 U.S. corn production prospects (less than 13.500 bb??) and tighter ending stocks (less than 1.500 bb??) in “next crop” MY 2018/19. And that risk again is likely to provide both old crop and new crop pricing opportunities in Spring-Summer 2018.
One positive long-term factor in the U.S. corn market is the considerable “tightening up” forecast with foreign (non-U.S.) corn supply-demand balances in the “new crop” 2017/18 marketing year. If this forecast by the USDA comes to fruition, could eventually lead to larger U.S. corn exports than currently forecast, and help support somewhat higher U.S. corn prices in Spring-Summer 2018 than is currently expected by the market.
Kansas Cash Corn Prices & Basis Bids
In Western Kansas on Monday, November 20th cash corn bids at major grain elevators ranged from $2.98 ($0.47 under DEC futures) to $3.40 ($0.05 under DEC), and ranged from $2.98 ($0.47 under DEC) to $3.20 ($0.25 under DEC) in Central Kansas. Even though Kansas corn prices have remained low in recent weeks, these prices still are higher than in Fall of a year abo when bids statewide had fallen to $2.66-$2.96 on December 23, 2016. These prices were still above marketing loan rates for corn across the state, with corn loans 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 $3.18-$3.22 on November 20th, actually down from the range of $3.26-$3.28 per bushel on 12/23/2016. Cash corn bids at Kansas ethanol plants on November 20th ranged from $3.23 ($0.20 under DEC) to $3.63 ($0.20 over DEC) – indicating continuing strength in ethanol demand for corn in Kansas and nationwide. While the “large supply and tight storage availability” situation continues in local Kansas grain markets, it is a positive sign that Kansas cash corn prices have avoided falling down to USDA loan rate levels – especially throughout the 2017 Kansas corn harvest.
Major Corn Market Considerations for Fall 2017 through Spring 2018
First, large beginning stocks of U.S. corn coming into “new crop” MY 2017/18 have been a “mitigating” factor limiting the response of the corn market to 2017 summer-early fall production risks that occurred. The corn market has been less responsive to any 2017 U.S. corn production threats since beginning stocks for “new crop” MY 2017/18 have been projected to be near 2.295 bb rather than down to 1.250-1.500 bb. If this “large stocks situation” persists into summer 2018, this mitigating and limiting affect will likely hamper future 2018 corn crop forward pricing prospects as well.
Second, the grain market continues to anticipate that low prices for U.S. corn will help maintain strong usage for domestic U.S. ethanol and wet milling production, as well as livestock feeding through at least spring 2018 if not into the summer months.
Third, at least “moderate” continued strength is expected in U.S. corn exports due to low U.S. corn prices and also to a moderately weaker U.S. dollar against other World currencies compared to a year ago. Exports of U.S. corn are expected to continue at a “decent” pace of 1.925 bb for “new crop” MY 2017/18 even though South American corn production will continue to be a competitive factor in World trade through at least the end of 2017. Also, preliminary forecasts for 2018 are that Brazilian corn acreage and production will be lower due to low prices and poor profitability in 2017, as well as a delayed 2nd crop of corn in parts of the country. Combined with the potential for crop-weather concerns in Brazil in coming months – these factors “could” have a positive impact on U.S. corn exports and price prospects in spring-summer 2018.
Fourth, a continuing threat exists of U.S. and Foreign economic and/or financial system disruptions that could impact grain, energy, and other commodity markets in 2017-2018. World geo-political events could provide “shocks” to U.S. and World energy and grain markets which could in turn impact grain prices in either direction depending on the circumstances, the countries involved, and their role in global corn export trade.
USDA Supply-Demand & Price Forecast for “New Crop” MY 2017/18
In the November 12th Crop Production report, the USDA raised its projections of a) projected yields up to a record high of 175.4 bu/ac (vs the previous record of 174.6 in 2016), and b) 2017 U.S. corn production up to 14.578 bb – down from the record high of 15.148 bb in 2016.
The USDA raised its forecast “new crop” MY 2017/18 total supplies to 16.922 bb – down marginally (20 mb) from last year’s record high. Total use is forecast at 14.435 bb – down 212 mb from last year’s record high. Ending stocks are projected to be a 2.487 bb (17.2% S/U) – up from 2.295 bb (15.7% S/U) in “old crop” MY 2016/17. United States’ corn prices are projected to average $3.20 /bu (range of $2.80-$3.60). This is down $0.16 /bu from $3.36 /bu from “old crop” MY 2016/17. This scenario is given an 80% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.
Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2017/18
Three alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “new crop” MY 2017/18. These forecast scenarios vary from the USDA’s projection in the November 9, 2017 WASDE report for “new crop” MY 2017/18.
A – KSU “Higher Exports” MY 2017/18 Scenario) “2.250 bb Exports” Scenario (10% probability) assumes: 90.404 ma planted, 82.941 ma harvested, 175.4 bu/ac trend yield, 14.548 bb production, 16.893 bb total supplies, 2.250 bb exports, 14.735 bb total use, 2.158 bb ending stocks, 14.65% S/U, & $3.50 /bu U.S. corn average price;
B – KSU “Lower Exports” MY 2017/18 Scenario) “1.800 bb Exports” Scenario (5% probability) assumes: 90.404 ma planted, 82.941 ma harvested, 175.4 bu/ac trend yield, 14.548 bb production, 16.893 bb total supplies, 1.800 bb exports, 14.310 bb total use, 2.583 bb ending stocks, 18.05% S/U, & $3.15 /bu U.S. corn average price;
C – KSU “Lower Yield” MY 2017/18 Scenario) “172.5 bu/ac – 14.307 bb crop” Scenario (5% probability) assumes: 90.404 ma planted, 82.941 ma harvested, 172.5 bu/ac trend yield, 14.307 bb production, 16.652 bb total supplies, 14.435 bb total use, 2.217 bb ending stocks, 15.36% S/U, & $3.40 /bu U.S. corn average;
Note: The presence of large beginning stocks of 2.295 bb in “new crop” MY 2017/18 limit the “tightness” of corn supply-demand balances in scenarios “A” and “C”, and hinder potential upward price responses.
World Corn Supply-Demand – With & Without China
World corn production of 1,043.9 million metric tons (mmt) is projected for “new crop” MY 2017/18, down 3.9% from the record of 1,074.8 mmt in “old crop” MY 2016/17, but still up 7.3% from 972.9 mmt in MY 2015/16. World corn total supplies of 1,270.5 mmt are down 1.45% from the record high 1,289.2 mmt in “old crop” MY 2016/17, and still up 7.4% from 1,182.4 mmt in MY 2015/16.
World corn exports of a 151.6 mmt are projected for “new crop” MY 2017/18, down 7.3% from the record high of 163.6 mmt in “old crop” MY 2016/17, and up 26.7% from 119.7 mmt in MY 2015/16. Projected World corn ending stocks of 203.9 mmt (19.1% S/U) in “new crop” MY 2017/18 are down from the record high 226.6 mmt (21.3% S/U) in “old crop” MY 2016/17, and from 214.4 mmt (22.2% S/U) in MY 2015/16.
An alternative view of the World corn supply-demand is presented if Chinese corn usage and ending stocks are isolated from the World market. “World-Less-China” corn ending stocks are projected to be 125.2 mmt (15.1% S/U) in “new crop” MY 2017/18, down from 125.9 mmt (15.2% S/U) in “old crop” MY 2016/17, but up from 103.7 mmt (13.8% S/U) in MY 2015/16. These figures show that World stocks-to-use of corn less China’s direct influence are projected to be approximately 21% lower (i.e., 15.1% S/U for the “World-Less-China” versus 19.1% S/U for the “World” overall in “new crop” MY 2017/18).
At the same time, these figures also show that Chinese ending stocks of corn as proportion of the World total are declining – down from 51.7% in MY 2015/16, to 44.5% in “old crop” MY 2016/17, and down to 38.6% in “new crop” MY 2017/18. 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 also eventually increase Chinese import demand for both U.S. corn and grain sorghum.