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 July 12, 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 July 2017″
Since the USDA’s July 12th World Agricultural Supply and Demand Estimates (WASDE) report, SEPT 2017 CME corn futures have fallen sharply. CME SEPT 2017 corn futures opened at $4.00 on July 12th – the day of the report – then traded as low as $3.68 ½ on July 13th before closing at $3.76 ¼ on July 14th. To date SEPT 2017 has remained above the recent contract low of $3.64 ½ on June 23, 2017, and the longer term contract lows of $3.48 ¼ on August 30-31, 2016.
Thus far in year 2017 U.S. corn prices have found moderate support due to spring corn planting and summer corn production uncertainties, and strong U.S. corn use in terms of ethanol production, wet corn milling, exports and – to a moderate degree – livestock feeding. Although the USDA forecast in the June 30th Acreage report of 90.886 million acres (ma) of U.S. corn plantings in 2017 was above trade expectations, this projection is still down from 94.004 ma planted in 2016. The USDA used a crop modeling approach to forecast 2017 U.S. corn yields to be 170.7 bu/acre in the July WASDE report.
However, in the upcoming survey-based August 10th Crop Production report, it is possible that various production problems resulting from dry conditions in the U.S. northern plains and late plantings elsewhere in the U.S. Corn Belt may result in U.S. corn yield projections closer to long term trend estimates of 165-168 bu/acre. If this occurs, then 2017 U.S. corn production estimates could be in the range of 13.6 to 13.8 billion bushels (bb) in the August 10th USDA reports instead of the USDA projection of 14.255 bb in the July WASDE.
So far, any significant corn futures or cash market price rallies in Spring 2017 have been limited by expectations that ending stocks of U.S. corn will stay above 2.0 bb in “next crop” MY 2017/18, coupled with ending stocks-to-use above 15.0%-16.0% in both “current” MY 2016/17 and “next crop” MY 2017/18. Drought conditions in the northern plains states of North Dakota, South Dakota, and Montana as well as parts of Nebraska and Iowa may have a negative impact on 2017 U.S. corn production. Also, corn production in 2017 may be negatively affected by carryover impacts from delayed plantings in the central Corn Belt earlier in Spring 2017, and periods of high temperatures that may have affected corn pollination in the first half of July.
Kansas Cash Corn Prices & Basis Bids
Cash corn bids at major grain elevators ranged from $3.36 ($0.40 under SEPT futures) to $3.76 ($0.00 under or par with futures) in Western Kansas and $3.21 ¼ ($0.55 under) to $3.41 ¼ ($0.35 under) in Central Kansas on Friday, July 14th. This represents a marked increase since October-December 2016 when corn price bids statewide had fallen below $3.00 per bushel – down to $2.66-$2.96 on December 23rd – although not as low as marketing loan rates near $2.05 (central KS) to $2.19 (western KS) per bushel. Cash corn price bids in east central and northeast Kansas – near river terminal locations – were near $3.44 – $3.46 on July 14th, up from the range of $3.26-$3.28 per bushel on 12/23/2016. Cash corn bids at Kansas ethanol plants on July 17th ranged from $3.52 ¼ ($0.24 under) to $4.18 ¼ ($0.42 over) – indicating continuing strength in ethanol demand for corn in Kansas and nationwide. While the “large supply and tight storage availability” situation still predominates in local Kansas grain markets, it is a positive market signal that Kansas cash corn prices have enough support to have avoided falling down to USDA loan rate levels.
Major Corn Market Considerations
First, large beginning stocks of U.S. corn coming into “next crop” MY 2017/18 have been a “mitigating” or “limiting” factor affecting the response of the corn market to 2017 production risk. The corn market is less anxious about having adequate corn supplies in the face of 2017 U.S. corn production risk when beginning stocks are 2.370 bb rather than 1.000 bb.
Second, it is anticipated that moderately low prices of 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 summer-fall 2017.
Third, at least moderate continued strength is expected in U.S. corn exports due to moderately low U.S. corn prices. Exports of U.S. corn are expected to continue at a “decent” pace” even though South American corn production will continue to be a competitive factor in World trade through at least the end of 2017.
Fourth, the possibility exists of broader 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 have the potential to provide “shocks” to U.S. and World energy and grain markets. However, the impact on the direction of U.S. and World corn markets of such disruptive events are difficult to anticipate – depending on which countries may be involved and their role in global corn export trade.
USDA Supply-Demand & Price Forecast for “Next Crop” MY 2017/18
The USDA has projected 2017 U.S. corn plantings to be 90.886 million acres or ‘ma’ (down 3.118 ma from 2016). Harvested acres in 2017 are forecast at 83.496 ma (down 3.252 ma), with projected yields of 170.7 bu/ac (vs the record high of 174.6 in 2016). This leads to a USDA 2017 U.S. corn production forecast of 14.255 bb – down from the record high of 15.148 bb in 2016.
The USDA forecast “next crop” MY 2017/18 total supplies to be 16.675 bb – down 265 mb from last year’s record high. Total use is forecast at 14.350 bb – down 220 mb from last year’s record high. Ending stocks are projected to be 2.325 bb (16.20% S/U) – down from 2.370 bb (16.27% S/U) in “current” MY 2016/17. United States’ corn prices are projected to average $3.30 /bu (range of $2.90-$3.70). This is down $0.05 /bu from the midpoint estimate of $3.30 /bu from “current” MY 2016/17. This scenario is given a 45% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.
Alternative KSU Supply-Demand & Price Forecast for “Next Crop” MY 2017/18
Four alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “next crop” MY 2017/18. Each forecast scenario presents the likelihood of lower U.S. corn acreage, yields and production than projected by the USDA in the July 12, 2017 WASDE report for “next crop” MY 2017/18.
A – KSU “Next Crop” MY 2017/18 Scenario #1) “167.3 bu/ac – 13.815 bb” Scenario (25% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 167.3 bu/ac trend yield, 13.815 bb production, 16.235 bb total supplies, 14.245 bb total use, 1.990 bb ending stocks, 13.97% S/U, & $3.55 /bu U.S. corn average price for “next crop” MY 2017/18;
B – KSU “Next Crop” MY 2017/18 Scenario #2) “165.0 bu/ac – 13.652 bb” Scenario (20% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 165.0 bu/ac yield, 13.625 bb production, 16.045 bb total supplies, 14.120 bb total use, 1.925 bb ending stocks, 16.63% S/U, & $3.60 /bu U.S. corn average price for “next crop” MY 2017/18;
C – KSU “Next Crop” MY 2017/18 Scenario #3) “160.0 bu/ac – 13.212 bb” Scenario (5% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 160.0 bu/ac yield, 13.212 bb production, 15.632 bb total supplies, 13.920 bb total use, 1.712 bb ending stocks, 12.30% S/U, & $3.80 /bu U.S. corn average price for “next crop” MY 2017/18;
D – KSU “Next Crop” MY 2017/18 Scenario #4) “150.0 bu/ac – 12.387 bb” Scenario (5% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 150.0 bu/ac yield, 12.387 bb production, 14.807 bb total supplies, 13.400 bb total use, 1.407 bb ending stocks, 10.50% S/U, & $4.20 /bu U.S. corn average price for “next crop” MY 2017/18;
Note: even with significant reductions in 2017 U.S. corn production as represented in KSU Scenarios C and D above, the presence of large beginning stocks of 2.370 bb in “next crop” MY 2017/18 limit the “tightness” of corn supplies, and lowers price prospects.
World Corn Supply-Demand – With & Without China
World corn production of 1,036.9 million metric tons (mmt) is projected for “next crop” MY 2017/18, down 3.0% from the record high of 1,068.8 mmt in “current” MY 2016/17, but still up 7.0% from 968.8 mmt in MY 2015/16. Near record World corn total supplies of 1,264.4 mmt are projected for “next crop” MY 2017/18, down marginally from the record high of 1,281.6 mmt in “current” MY 2016/17, but up from 1,178.4 mmt in MY 2015/16.
World corn exports of a near record 152.5 mmt are projected for “next crop” MY 2017/18, down 4.6% from the record high of 159.7 mmt in MY 2015/16, and up 27.5% from 119.6 mmt in MY 2015/16. Projected World corn ending stocks of 200.8 mmt (18.9% S/U) in “next crop” MY 2017/18 are down from the record high 227.5 mmt (21.6% S/U) in “current” MY 2016/17, and from 212.8 mmt (22.0% 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 119.5 mmt (14.5% S/U and 40.5% of World corn stocks) in “next crop” MY 2017/18, down from 126.2 mmt (15.4% S/U and 44.5% of World stocks) in “current” MY 2016/17, but up from 102.0 mmt (13.6% S/U and 52.1% of World Stocks). These figures show that World stocks of corn less China’s direct influence are projected to be down approximately 23% (i.e., 14.5% S/U for the “World Less China” versus 18.9% S/U for the “World” overall in “next crop” MY 2017/18).
These figures also show that Chinese ending stocks of corn as proportion of the World overall is declining – down from 52.1% in MY 2015/16 to 44.5% in “current” MY 2016/17, and down to 40.5% in “next crop” MY 2017/18. The deliberate actions taken by the Chinese government in recent years to reduce feedgrain stockpiles is impacting the relative amount of corn stocks they hold in the World corn market.