An analysis of Corn Market Situation & Outlook in July 2018 for the remainder of the “old crop” 2017/18 and “new crop” 2018/19 marketing years is provided in the following article from Kansas State University . This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) report on July 12, 2018.
A full version of this article is or will shortly be 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 Situation & Outlook in July 2018″
Corn Market Situation & Outlook in July 2018
In response to the July 12, 2018 USDA WASDE Report
Daniel O’Brien – Extension Agricultural Economist, Kansas State University
July 13, 2018
The July 12, 2018 USDA reports contained positive news for corn market prospects on balance. Corn markets generally responded in a moderately positive-to-neutral manner to the July 2018 USDA World Agricultural Supply and Demand Estimates (WASDE) report – with important changes occurring and trends emerging in both domestic U.S. and foreign corn grain supply-demand and price prospects.
Projections of: 1) changes in corn usage in the U.S. corn “old crop” 2017/18 marketing year (MY); 2) higher 2018 production and total use estimates for U.S. “new crop” MY 2018/19; and 3) a sharp tightening of foreign corn supply-demand balances forecast for “new crop” MY 2018/19, were each key elements found in the July 12th WASDE report.
1) Higher Usage of U.S. Corn in “Old Crop” MY 2017/18 (ending August 31st)
The USDA increased its projection of U.S. corn usage and tightened its forecast of ending stocks in the “old crop” MY 2017/18 supply-demand balance sheet for U.S. corn. Total “old crop” use of U.S. corn was projected to be up 70 million bushels (mb) from a month earlier to a record high 14.910 billion bushels (bb). This was due to a combination of a 100 mb increase in projected exports (2.400 bb), a 25 mb increase in corn ethanol use (5.600 bb), a 20 mb drop in non-ethanol food, seed and industrial use (1.460 bb), and a 50 mb drop in forecast feed & residual use (5.450 bb).
Projected exports were raised in response to the level of forward purchases of U.S. corn exports – being affected by a reduction in the 2018 Brazilian corn crop and exportable supplies. Forecast U.S. corn ethanol use was increased to match the pace of U.S. ethanol production that has been occurring. Conversely, U.S. corn feed usage was lowered following the rate of corn use reported in the June 29th USDA Grain Stocks report. Ending stocks of 2.027 bb were down 25 mb from a month earlier, with a drop in percent ending stocks-to-use from 14.2% in the June WASDE to 13.6% in July, and mid-range price estimates being unchanged at $3.40 per bushel.
2) Higher Production & Usage with Tighter Stocks of U.S. Corn in “New Crop” MY 2018/19
The USDA raised its projection of 2018 U.S. corn production by 190 mb to 14.230 bb due to the increase in 2018 U.S. corn planted acreage (89.128 million acres or ‘ma’) and harvested acres (81.770 ma) reported in the June 29th USDA Acreage report. Projected total supplies in “new crop” MY 2018/19 were raised by 115 mb to 16.307 bb due to a combination of reduced beginning stocks and higher production.
Total use of U.S. corn in “new crop” MY 2018/19 is projected to be up 140 mb than a month earlier, up to 14.755 bb – 2nd highest on record. This was due to a combination of a 140 mb increase in projected exports (2.225 bb), a 50 mb decrease in corn ethanol use (5.625 bb – still a record high), a 10 mb drop from a month earlier in non-ethanol food, seed and industrial use (1.480 bb), and a 75 mb increase in forecast feed and residual use (5.425 bb). Forecast ending stocks of 1.552 bb were down 25 mb from a month earlier, with a drop in percent ending stocks-to-use from 10.8% in the June WASDE to 10.5% in July, and midrange price estimates being down $0.10 from a month earlier at $3.80 per bushel.
3) South American Corn Trends Affecting World Stocks & U.S. Export Prospects
For “old crop” MY 2017/18 the USDA lowered its projections for Brazil of both production (down 1.5 million metric tons or ‘mmt’ to 83.5 mmt) and exports (down 3 mmt to 26.0 mmt) from a month earlier. Forecast Argentina corn exports for “old crop” MY 2017/18 were also lowered from a month earlier, down 1 mmt to 24.0 mmt. These reductions in South American exports were partially offset by a 2.54 mmt (100 mb) increase in forecast U.S. corn exports for “old crop” MY 2017/18.
Sizable increases in World corn production are forecast from 1,033.74 mmt in “old crop” MY 2017/18 to 1,054.30 mmt in “new crop” MY 2018/19 (up 2.0%) – beginning on September 1, 2018. These year-to-year production increases are more than matched by expected increases in total use, from 1,069.67 mmt in “old crop” MY 2017/18 to 1,094.08 mmt in “new crop” MY 2018/19 (up 2.3%). As a result, ending stocks and % stocks-to-use of World corn are forecast to decline significantly, from 191.73 mmt in (17.9% Stks/Use) “old crop” MY 2017/18 to 151.96 mmt in (13.9% Stks/Use) in “new crop” MY 2018/19 (down 22.5%).
Implications of the July 12, 2018 WASDE Report for U.S. Corn Market Outlook
The July 12th WASDE report spoke more to the demand and usage potential for U.S. corn in 2018-2019 than to supply prospects. The first USDA survey-based information on the size of the 2018 U.S. corn crop will be provided in the August 10th USDA Crop Production report provided by the USDA National Agricultural Statistical Service (NASS). These NASS results will be used in the August World Agricultural Supply and Demand Estimates (WASDE) report that same day for the purpose of estimating corn market supply-demand and prices going forward into “new crop” MY 2018/19 (to begin on September 1st).
The possibility still exists of 2018 U.S. corn production ending up being markedly lower than the 14.230 bb forecast in the July WASDE report. Dry conditions in various areas – particularly Missouri and eastern Kansas, along with excessive moisture in the northern Iowa – southern Minnesota – eastern South Dakota area could cause lower yields, as could such issues as warmer than normal night time temperatures, etc. throughout the U.S. Corn Belt. So, it is too soon to indicate without reasonable caution that 2018 U.S. corn crop prospects are reliably proceeding toward a 14.0-14.2 bb or more U.S. corn crop. However, it IS likely at this time that the 2018 U.S. corn crop will not be “short”, and that total supplies of 16.25 to 16.75 bb will occur in “new crop” MY 2018/19 – being the 2nd highest on record after 16.937 bb which is now projected in “old crop” MY 2017/18.
Key Issue – U.S. Corn Use Supported by Large Supplies & Low Corn Input Prices
A key issue driving in the U.S. corn market is the ongoing positive impact of low corn prices on U.S. corn usage. Low prices due to abundant supplies nationally have provided support for U.S. corn domestic ethanol and wet corn milling use, and feed usage, as well as U.S. corn exports. It is of no small significance that U.S. corn ending stocks are projected to drop from 2.027 bb (13.59% Stks/Use) in “old crop” MY 2017/18 down to 1.552 bb (10.52% Stks/Use) in “new crop” MY 2018/19.
Following these changes in ending stocks, U.S. corn prices are projected to rise from a range midpoint estimate of $3.40 in the “old crop” period up to the range of $3.30-$4.30 /bu (midpoint = $3.80 /bu) in “new crop” MY 2018/19. There is support for the idea that after harvest occurs there may be enough domestic and foreign demand for U.S. corn that the U.S. corn price could end up being closer to the higher end of the USDA forecast range (i.e., closer to $4.30 /bu) by summer 2019.
Whether that occurs or not may depend on the development of production prospects for the 2019 South American corn crop during the January-June 2019 period. It is widely thought that high soybean prices in South America that are occurring now in response to the U.S. – China trade dispute may cause larger than normal planted areas of soybeans to be planted in Argentina and Brazil in 2019 – essentially “crowding out” or “limiting” corn production in these same areas. IF that occurs, then lower 2019 South American corn exportable supplies will provide support for U.S. corn exports in spring 2019. And if any weather or production threats were to impact prospects for 2019 South American corn production, well, it would provide strong support for U.S. corn exports and prices in the first half of year 2019.
Final Thoughts re: U.S. Corn Market Outlook
It seems prudent to plan to manage both “old crop” and “new crop” corn marketings in years 2018-2019 with the idea that there will be adequate U.S. corn supplies and no major short crop event occurring. This leads to adoption of the attitude that a somewhat “normal” seasonal price pattern for corn is likely for the remainder of “old crop” MY 2017/18 and especially for “new crop” MY 2018/19. This would result is some price volatility being likely for the remainder of July-August 2018, but then as harvest approaches the probability of a seasonal harvest price low in September-November 2018.
However, this year, from November 2018 through January 2019, the “narrative consensus” of the corn market will likely have a greater focus on corn planting progress and early season development in Argentina and Brazil – particularly in tandem with a focus on similar reports about the acreage and progress of their soybean crops. It is possible if not likely that news about the pace of usage of U.S. domestic corn and other feedgrains will have the attention of the U.S. corn markets. The impact of this news will be exacerbated IF U.S. corn exports are spurred on to higher levels by worries about potentially lower South American corn supplies for export in spring 2019. Then from late winter into spring 2019 U.S. corn markets will be simultaneously paying attention to the pace of U.S. corn domestic and export usage and to 2019 U.S. corn planting prospects. The corn market will likely then be driven by 2019 U.S. corn production prospects from what remains of spring through Summer and early fall 2019.
During this anticipated “normal seasonal” price pattern for corn in “new crop” MY 2018/19, U.S. producers will be making marketing decisions under conditions of “uncertainty” as profitable seasonal pricing opportunities present themselves. For those with a “risk averse” perspective on corn price risk management, there will be a tendency to price corn “earlier” and in “greater quantities” to avoid the possibility of being forced to sell at lower prices later on. This “early action” approach contrasts to those of producers who are less worried (i.e., “averse”) about being in what is essentially a “speculative storage” position in the corn market – holding unpriced corn in storage longer while waiting for the possibility of a better price.
The key point is that the likelihood exists of there being greater than normal price strength in U.S. corn markets through the winter and spring 2019 months – given the likelihood of more South American crop area being planted into soybeans to the exclusion of corn and the strong domestic demand base for the crop.