This article provides an analysis of U.S. and World corn supply-demand factors and price prospects for both the “New Crop” 2017/18 marketing year following the USDA’s August 10, 2017 USDA Crop Production and https://www.usda.gov/oce/commodity/wasde/latest.pdf reports as well the crop growing conditions that have occurred since those reports were released.
Following is a summary of the article on “Corn Market Outlook in Early-September 2017″ with the full article and accompanying analysis to be available early next week (Monday-Tuesday, September 4-5, 2017) on the KSU AgManager website (www.AgManager.info) at the following web address:
Since the USDA’s August 10th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, DEC 2017 CME corn futures have fallen sharply. CME DEC 2017 corn futures opened at $3.85 ½ on August 12th – the day of the report – then traded as low as $3.70 ¼ that day before closing at $0.15 ¼ lower at $3.71. Since then DEC 2017 corn trended down to a contract low of $3.44 ¼ on August 31st, before closing at $3.55 ¼ on Friday, September 1st.
Until the August 10th USDA reports U.S. corn prices had found support due to 1) spring corn planting difficulties, 2) summer corn production problems in select parts of the U.S. Corn Belt, and 3) strong U.S. corn use for ethanol production, wet corn milling, exports and – to a moderate degree – livestock feeding.
However, in the August 10th USDA Crop Production report, the USDA projected 2017 U.S. corn yields to average 169.5 bu/ac, up from a number of pre-report trade estimates of 165-168 bu/acre. As a result, the USDA projected 2017 U.S. corn production to be 14.153 billion bushels (bb) – markedly higher than the range of 13.6 to 13.8 bb that the grain markets were anticipating.
Since the August 10th reports, varying U.S. corn production prospects have continued, but market expectations of a “large supply – low price” scenario have predominated, leading to price declines. This difference between the USDA August 2017 yield projection and trade expectations heightens the market’s focus on coming September, October and November 2017 USDA Crop Production reports.
During 2017 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 “new crop” MY 2017/18, coupled with ending stocks-to-use above 15.0%-16.0%. Drought conditions in the northern plains states of North Dakota, South Dakota, and Montana as well as parts of Iowa and Illinois may ultimately have a negative impact on 2017 U.S. corn production, as may carryover impacts from delayed plantings in Indiana earlier in Spring 2017, and periods of high temperatures that may have affected corn pollination in Corn Belt states in the first half of July.
Kansas Cash Corn Prices & Basis Bids
In Western Kansas on Friday, September 1st cash corn bids at major grain elevators ranged from $3.05 ($0.35 under SEPT futures) to $3.40 ($0.15 under DEC futures), and ranged from $2.92 ¼ ($0.63 under DEC) to $3.25 ¼ ($0.30 under DEC) in Central Kansas. Even though Kansas corn prices have declined in recent weeks, these prices still are sharply higher than in October-December 2016 when corn price bids statewide had fallen below $3.00 per bushel – down to $2.66-$2.96 on December 23rd. 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.
However, cash corn price bids in East Central and Northeast Kansas at major terminal locations were in the range of $3.05 ¼ – $3.15 ¼ on September 1st, actually down from the range of $3.26-$3.28 per bushel on 12/23/2016. Cash corn bids at Kansas ethanol plants on September 1st ranged from $3.22 ¾ ($0.35 under DEC) to $3.72 ¾ ($0.15 over DEC) – 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 that Kansas cash corn prices have avoided falling down to USDA loan rate levels.
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 production risk. The corn market has been less anxious about the adequacy of corn supplies in the face of 2017 U.S. corn production risk since beginning stocks for “new crop” MY 2017/18 have been up to 2.370 bb rather than down to 1.000 bb.
Second, it is anticipated 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 fall-winter 2017.
Third, at least moderate continued strength is expected in U.S. corn exports due to low U.S. corn prices and a moderate weakening of the U.S. dollar against other World currencies. Exports of U.S. corn are expected to continue at a “decent” pace of 1.850 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 will be lower due to low prices and poor profitability in 2017 – which may have a positive effect on U.S. corn exports and price prospects.
Fourth, a 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 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 and the countries involved and their role in global corn export trade.
USDA Supply-Demand & Price Forecast for “New Crop” MY 2017/18
With the USDA’s projection of 2017 U.S. corn plantings at 90.886 million acres or ‘ma’ (down 3.118 ma from 2016), harvested acres of 83.496 ma (down 3.252 ma), and projected yields of 169.5 bu/ac (vs the record high of 174.6 in 2016), 2017 U.S. corn production is forecast to be 14.153 bb – down from the record high of 15.148 bb in 2016.
The USDA forecast “new crop” MY 2017/18 total supplies to be 16.573 bb – down 367 mb from last year’s record high. Total use is forecast at 14.300 bb – down 270 mb from last year’s record high. Ending stocks are projected to be 2.273 bb (15.90% S/U) – down from 2.370 bb (16.27% S/U) in “old crop” 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 $3.35 /bu from “old crop” MY 2016/17. This scenario is given a 50% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.
Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2017/18
Four alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “new 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 August 10, 2017 WASDE report for “new crop” MY 2017/18.
A – KSU “New crop” MY 2017/18 Scenario #1) “167.3 bu/ac – 13.815 bb” Scenario (35% 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, & $3.60 /bu U.S. corn average price for “new crop” MY 2017/18;
B – KSU “New crop” MY 2017/18 Scenario #2) “164.0 bu/ac – 13.543 bb” Scenario (10% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 164.0 bu/ac yield, 13.543 bb production, 15.963 bb total supplies, 14.120 bb total use, 1.843 bb ending stocks, 13.05% S/U, & $3.75 /bu U.S. corn average price for “new crop” MY 2017/18;
C – KSU “New crop” MY 2017/18 Scenario #3) “160.0 bu/ac – 13.212 bb” Scenario (4% 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, & $3.85 /bu U.S. corn average price for “new crop” MY 2017/18;
D – KSU “New crop” MY 2017/18 “Wildcard” Scenario #4) “167.3 bu/ac – 13.815 bb” Scenario (1% 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, 14.085 bb total use, 2.150 bb ending stocks, 15.26% S/U, & $3.45 /bu U.S. corn average price for “new crop” MY 2017/18;
Note: even with significant reductions in 2017 U.S. corn production as represented in the KSU Scenarios A, B, C and D above, the presence of large beginning stocks of 2.370 bb in “new crop” MY 2017/18 limit the “tightness” of corn supply-demand balances, and hinders any upward price responses.
World Corn Supply-Demand – With & Without China
World corn production of 1,033.5 million metric tons (mmt) is projected for “new crop” MY 2017/18, down 1.7% from the record high of 1,070.5 mmt in “old crop” MY 2016/17, but still up 7.1% from 969.5 mmt in MY 2015/16. Near record World corn total supplies of 1,262.1 mmt are projected for “new crop” MY 2017/18, down marginally from the record high of 1,284.0 mmt in “old crop” MY 2016/17, but up from 1,178.7 mmt in MY 2015/16.
World corn exports of a 152.0 mmt are projected for “new crop” MY 2017/18, down 6.4% from the record high of 162.4 mmt in “old crop” MY 2016/17, and up 27.1% from 119.6 mmt in MY 2015/16. Projected World corn ending stocks of 200.9 mmt (18.9% S/U) in “new crop” MY 2017/18 are down from the record high 228.6 mmt (21.7% S/U) in “old crop” MY 2016/17, and from 213.5 mmt (22.1% 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 119.6 mmt (14.5% S/U) in “new crop” MY 2017/18, down from 127.3 mmt (15.5% S/U) in “old crop” MY 2016/17, but up from 102.7 mmt (13.7% S/U). These figures show that World stocks-to-use 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 “new crop” MY 2017/18).
These figures also show that Chinese ending stocks of corn as proportion of the World overall is declining – down from 51.9% in MY 2015/16 to 44.3% in “old crop” MY 2016/17, and down to 40.5% in “new 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.