U.S. Ethanol and Biodiesel Markets and Profits – Net Losses for Ethanol & Biodiesel Plants in July 2019

A. Ethanol Price and Profitability Trends

By Iowa State University model estimates, ethanol plants in Iowa and other Midwest states were operating at losses of ($0.22 /gallon) losses in July, with estimated losses of ($0.25 /gallon) in June 2019.

During the July 1-26, 2019 period, corn input purchase prices for Iowa ethanol plants averaged $4.29 /bu – compared to $4.17 in June, and $3.63 1/2 /bu in May.  Selling prices of distillers dried grains (DDGS) (10% moisture) averaged $134.18 /ton during July 1-26, up from $130.53 /ton in June, and up from 118.63 /ton in May. The selling price of ethanol via tank car and truck shipment out of Iowa ethanol plants has averaged $1.47 /gallon during July 1-26, up marginally from $1.46 /gallon in June, and from $1.25 /gallon in May.

Overall, during the July 1-26, 2019 time frame, the estimated cost of production of a representative ethanol plant in Iowa has averaged $1.72 per gallon – comparable to $1.69 in June, $1.53 per gallon in May, and $1.43 in April.  This has lead to an estimated average negative net return of minus $0.25 per gallon produced so far in July 2019, with is comparable to losses of $0.22 /gallon in June and losses of $0.27 /gallon in May 2019.

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B. Ethanol Production & Stocks Trends

Since the beginning of the “old crop” 2018/19 marketing year (MY) for U.S. corn on September 1, 2018, U.S. ethanol production has averaged 1.036 million barrels per week over 46 weeks. At this average pace, U.S. ethanol production would reach 15.878 billion barrels in “current” MY 2018/19.  Further, at a rate of 2.83 gallons of ethanol per bushel of feedgrain used for ethanol production (corn and/or grain sorghum), at total of 5.611 billion bushels of feedgrains would be used for ethanol production in the current marketing year.

The USDA’s latest World Agricultural Supply and Demand Estimates (WASDE) report on June 11, 2018 have a more conservative, cautious perspective.  In the July WASDE report the USDA projected that in current MY 2018/19 a total of 5.500 billion bushels (bb) of U.S. corn would be used for ethanol production, and that 100 million bushels (mb) of U.S. grain sorghum would be used for Food, Seed, and Industrial (FSI) uses – which is primarily industrial ethanol production.

United States’ ethanol stocks had declined moderately during April-June from historically high levels in March 2019 – which had been burdening the ethanol market and having a negative impact on U.S. ethanol prices.  Now again in July U.S. ethanol stocks have increased – leading to larger corn supply-demand balances, and together with higher priced corn inputs are pressuring the profitability of U.S. ethanol plants.

C. Biodiesel Price & Profitability Trends

Reductions have also occurred in the estimated profitability of Biodiesel plants in Iowa and nearby states – although the losses are comparatively small relative to ethanol producing facilities during the July 1-26, 2019 period.

By Kansas State University estimates, during the July 1-26, 2019 period, soybean oil input purchase prices for Iowa biodiesel plants averaged $28.03 per cwt – up from an average price $27.64 /cwt in June 2019.   This occurred while Biodiesel selling prices averaged $2.81 /gallon during 7/1-30/2019, being up from $2.72 /cwt in May.

Also during the July 1-30 period, the cost of production at representative biodiesel plants in Iowa has averaged $2.85 per gallon – up from $2.75 per gallon June, and from $2.70 /gallon in May.  As a result, net returns of this representative soy biodiesel plant is Iowa during July were estimated a loss of $0.04 per gallon produced.  This is comparable to a projected monthly average loss of $0.03 per gallon in June, and profits of $0.09 /gallon during the May 2019 period. 

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Following are some graphics on U.S. Ethanol and Biodiesel Market price and profitability trends in the , which will soon be available on the KSU AgManager website:  http://www.agmanager.info/

The full presentation titled “U.S. Ethanol & Biodiesel Market Situation” made for WILL (Illinois Public Radio) on Tuesday, July 30, 2019 and will be located at the KSU AgManager.info website – at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

 

Following are the graphics of this presentation.

U.S. Ethanol and Biodiesel Markets and Profitability – Financial Losses for Ethanol and Biodiesel Plants in June to Date

A. Ethanol Price and Profitability Trends

By Iowa State University model estimates, ethanol plants in Iowa and other Midwest states were operating at losses of $0.22 /gallon losses in May and so far in June 2019.

During the June 1-21, 2019 period, corn input purchase prices for Iowa ethanol plants averaged $4.12 /bu – compared to 3.63 1/2 /bu in May.  Selling prices of distillers dried grains (DDGS) (10% moisture) averaged $129.87 /ton during June 1-21, up from $120.81 /ton a month earlier. The selling price of ethanol via tank car and truck shipment out of Iowa ethanol plants has averaged $1.45 /gallon during June 1-21, up from $1.294 /gallon in May.

Overall, during the June 1-21, 2019 time frame, the estimated cost of production of a representative ethanol plant in Iowa has averaged $1.66 per gallon – comparable to $1.52 per gallon in May, and $1.42 in April.  This has lead to an estimated average negative net return of minus $0.22 per gallon produced so far in June 2019, with is comparable to losses of $0.22 /gallon in May and losses of $0.12 /gallon in April 2019.

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B. Ethanol Production & Stocks Trends

Since the beginning of the “current” 2018/19 marketing year (MY) for U.S. corn on September 1, 2018, U.S. ethanol production has averaged 1.033 million barrels per week over 41 weeks. At this average pace, U.S. ethanol production would reach 15.832 billion barrels in “current” MY 2018/19.  Further, at a rate of 2.83 gallons of ethanol per bushel of feedgrain used for ethanol production (corn and/or grain sorghum), at total of 5.594 billion bushels of feedgrains would be used for ethanol production in the current marketing year.

The USDA’s latest World Agricultural Supply and Demand Estimates (WASDE) report on June 11, 2018 seem to account for this.  In the June WASDE report the USDA projected that in current MY 2018/19 a total of 5.500 billion bushels (bb) of U.S. corn would be used for ethanol production, and that 100 million bushels (mb) of U.S. grain sorghum would be used for Food, Seed, and Industrial (FSI) uses – which is primarily industrial ethanol production.

United States’ ethanol stocks have declined moderately during April-June from historically high levels in March 2019 – which had been burdening the ethanol market and having a negative impact on U.S. ethanol prices.  Growing in U.S. ethanol stocks over the last few marketing years had led to much lower U.S. ethanol prices through mid-May 2019.  However, concerns about 2019 U.S. corn production and ethanol availability prospects, and strengthening seasonal demand for U.S. gasoline has caused ethanol and gasoline prices overall to increase from mid-May to highs in early June 2019.

C. Biodiesel Price & Profitability Trends

Reductions have also occurred in the estimated profitability of Biodiesel plants in Iowa and nearby states – although the losses are comparatively small relative to ethanol producing facilities during the June 1-21, 2019 period.

By Kansas State University estimates, during the June 1-21, 2019 period, soybean oil input purchase prices for Iowa biodiesel plants averaged $27.56 per cwt – down from an average price $28.08 /cwt in May 2019.   This occurred while Biodiesel selling prices averaged $2.70 /gallon during 6/1-21/2019, being down from $2.80 /cwt in May.

Also during the June 1-21 period, the cost of production at representative biodiesel plants in Iowa has averaged $2.74 per gallon – up from $2.71 per gallon May.  As a result, net returns of soy biodiesel product were a loss of $0.04 per gallon produced.  This is comparable to monthly average profits of $0.09 /gallon during the May 2019 period. 

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Following are some graphics on U.S. Ethanol and Biodiesel Market price and profitability trends in the , which will soon be available on the KSU AgManager website:  http://www.agmanager.info/

The full presentation titled “U.S. Ethanol & Biodiesel Market Situation” made for WILL (Illinois Public Radio) on Tuesday, June 25, 2019 and will be located at the KSU AgManager.info website – at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

 

Following are the graphics of this presentation.

KSU Corn Market Outlook on June 22, 2019: “A ‘Short’ U.S. Corn Crop Market Scenario in “New Crop” MY 2019/20”

An analysis of Corn Market Outlook on June 24, 2019 for “new crop” 2019/20 marketing year is provided in the following article from Kansas State University Department of Agricultural Economics.  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) and other USDA reports through mid-day on Monday, June 24, 2019, with info from the USDA NASS Crop Progress reports on June 17, 2019.  Note that the USDA Acreage Report to be released on Friday, June 28th will provide more solid numbers on U.S. corn planted acreage in 2019 – from which more accurate supply-demand and price projections can then be made.

A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

Following is a summary of the article on “U.S. Corn Market Outlook on June 24, 2019”

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U.S. Corn Market Outlook on June 24, 2019

‘Development of an Historic U.S. Corn Short Crop Year in “New Crop” MY 2019/20’

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

June 24, 2019

Summary

Excessive and prolonged rainfall and moist field conditions have reduced U.S. corn planted acres, reduced yield prospects on late-planted corn, and diminished overall U.S. corn production prospects in year 2019.   Following is the USDA forecast of U.S. corn supply-demand balances and prices for the “new crop” 2019/20 marketing year.

A. USDA Forecast – 13.680 billion bu. (bb) Crop, $3.80 /bu (20% probability KSU)

On June 11th the USDA projected that U.S. corn production would be 13.680 billion bushels (bb) in year 2019, with ending stocks of 1.675 bb, percent (%) stocks-to-use of 11.75%, and projected U.S. average cash corn prices of $3.80 per bushel for the “new crop” 2019/20 marketing year beginning September 1, 2019 (Tables 1a-b)This USDA forecast is given a 20% probability of occurring by KSU Extension Ag Economist D. O’Brien. 

B. KSU Scenario #1 – 12.417 bb Crop, $4.15 /bu (30% probability KSU)

An alternative KSU Scenario #1 to consider for “new crop” MY 2019/20 involves less planted acres, lower production, tighter stocks, and higher prices then the USDA’s forecast (Table 1b).  This scenario involves 85.0 million acres (ma) of corn planted, 88.0% harvested-to-plant acres, an average yield of 166 bu. per acre, and 2019 U.S. corn production of 12.417 bb (versus 13.680 bb by USDA).  This scenario results in lower ending stocks of 1.350 bb, lower percent (%) stocks-to-use of 10.14%, and higher projected U.S. average cash corn prices of $4.15 /bu.. (Estimated 30% probability KSU)  

C. KSU Scenario #2 – 11.669 bb Crop, $5.00 /bu (25% probability KSU)

For alternative KSU Scenario #2 for “new crop” MY 2019/20, there are still less planted acres (same as Scenario #1), but even lower production due to still lower yields of 156 bu/ac., with the result of still tighter stocks, and even higher prices (Table 1b).  This scenario involves 85.0 million acres (ma) of corn planted, 88.0% harvested-to-plant acres, an average yield of 156 bu. per acre, and 2019 U.S. corn production of 11.669 bb.  This scenario results in still lower ending stocks of 1.110 bb, lower percent (%) stocks-to-use of 8.67%, and even higher projected U.S. average cash corn prices of $5.00 /bu.. (Estimated 25% probability KSU)  

D. KSU Scenario #3 – 11.686 bb Crop, $5.05 /bu (15% probability KSU)

For alternative KSU Scenario #3 for “new crop” MY 2019/20, there are even less planted acres (down from Scenarios #1 & #2), lower production due to low yields of 166 bu/ac., with the result of tight stocks, and higher prices (Table 1b).  This scenario involves 80.0 million acres (ma) of corn planted, 88.0% harvested-to-plant acres, an average yield of 166 bu. per acre, and 2019 U.S. corn production of 11.686 bb.  This scenario again results in lower ending stocks of 1.107 bb, low percent (%) stocks-to-use of 8.63%, and higher projected U.S. average cash corn prices of $5.05 /bu.. (Estimated 15% probability KSU

E. KSU Scenario #4 – 10.982 bb Crop, $5.70 /bu (10% probability KSU)

For alternative KSU Scenario #4 for “new crop” MY 2019/20, there are even less planted acres (down from Scenarios #1 & #2), lower production due to sharply lower yields of 156 bu/ac., with the result of tight stocks, and even higher prices (Table 1b).  This scenario involves 80.0 million acres (ma) of corn planted, 88.0% harvested-to-plant acres, an average yield of 156 bu. per acre, and 2019 U.S. corn production of 10.982 bb.  This scenario again results in still lower ending stocks of 1.000 bb, low percent (%) stocks-to-use of 8.18%, and higher projected U.S. average cash corn prices of $5.70 /bu.. (Estimated 10% probability KSU)  

 

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The U.S. Corn Market Situation on June 24, 2019

The serious and prolonged excess moisture problems during the 2019 spring planting season for U.S. corn have led to a sharp reduction in 2019 U.S. corn production prospects.  In some areas of the U.S. Corn Belt the historic extremely moist field condition situation that began during April-May has persisted through June 2019 – beyond crop insurance full coverage deadlines and the physiological limits of a normal annual planting / growing season. 

The strong likelihood of a major U.S. corn production shortfall in year 2019 has brought about the strong likelihood of a classic “short crop” scenario occurring for U.S. corn in the “new crop” 2019/20 marketing year. The last major “short crop” marketing year for U.S. corn occurred seven (7) years ago in year 2012 due to extreme summer heat and accompanying crop stress – rather than the over-abundance of rainfall with accompanying flooding and soggy fields that has occurred in Spring 2019.

In so many words, calendar year 2019 has already become a unique, “analog” year in terms of how spring moisture has delayed or prevented U.S. corn plantings.   What remains to be seen are that actual, physical “numbers” for planted and harvested U.S. corn acres, the rate of crop development and eventual degree of physiological maturity in the fall of 2019, and the final size and quality of the 2019 U.S. corn crop going into “new crop” MY 2019/20. 

These U.S. corn supply concerns have driven corn futures sharply higher in recent weeks as the corn market anticipates how sharply reduced 2019 U.S. corn production would lead to much tighter U. S. corn supply-demand balances and the need for price rationing of usage in “new crop” MY 2019/20 (beginning on September 1, 2019).  

For example, “old crop” JULY 2019 Corn futures prices have increased from a low of $3.43  per bushel on May 13th to a high of $4.38 on May 29th, and then up to a high of $4.64 ¼ on June 17th, before closing lower at $4.47 on June 24th.  Similarly, “new crop” DEC 2019 Corn futures prices have increased from a low $3.63 ¾ per bushel on May 13th to a high of $4.54 on May 29th, and then likewise up to a high of $4.73 on June 17th, before closing lower at $4.57 ¼ on June 24th . (Figures 1 & 2a-b).   With this rally in corn futures, managed money (specs) traders who had been holding record short or bearish positions during April through mid-May, through mid-June have bought back much (but not all) of their bearish short futures positions and instead build up the long or buy side of their speculative trade portfolios (Figures 3a-b-c-d).

The U.S. government is also planning to provide a second round of Market Facilitation Payments (MFPs) to U.S. crop producers, with the stipulation that crops have to be actually planted in year 2019 to collect these MFP funds.  That actual crop acres had to be planted for farmers to receive this second round of MFP payments has been the policy position of the USDA Farm Service Agency (FSA) through the time of the writing of this article.  However, a U.S. congressional disaster aid program – a separate effort to support U.S. farmers affected by flooding and prevented planting in year 2019 – may provide additional support for those who have not been able to plant crops at all. 

As these planting delays U.S. corn have continued into mid-late June, the more likely it is that U.S. farmer who CAN get into fields to plant will switch to other shorter season cropping options such as soybeans and grain sorghum – or just take prevented planting crop insurance payments in crop year 2019.   The allowance by the USDA of planting “cover crops” such as annual forages on these same acres has also factored into these discussions among USDA policy makers, congress, the crop insurance industry, and farm groups together with the farmers they represent.

It is a vast oversimplification to say that the direction of the U.S. corn market for the remainder of “old crop” MY 2018/19 (ending August 31st) and the beginning stages of “new crop” MY 2019/20 (starting September 1st) will depend on how these 2019 production issues work themselves out.  Fundamental questions about a) the final actual amount of U.S. corn acres that WERE planted (and WHEN they were planted), b) the percent harvested acres in water logged areas, and c) the final amount of physiologically mature crop yields as the growing season advances from now into fall 2019.   During that period U.S. farmers will likely be “under duress” as they make difficult late season marketing and financial management decisions under conditions of production uncertainty on their individual farms. 

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Status of Delayed U.S. Corn Production Prospects Through June 22nd

The U.S. Corn Belt states that have been hardest hit by wet weather, flooding and planting delays for corn and other crops in 2019 have been Illinois, Indiana, Michigan, Ohio, South Dakota and Wisconsin.  Significant wet soil conditions and planting delays have also occurred in Iowa, Kansas, Minnesota, Missouri, Nebraska, and Pennsylvania.   This can be seen in the percent of corn emerged through June 16th as reported by the USDA National Agricultural Statistical Service (NASS) (Table 2).  Percent of corn emerged may be a more accurate assessment of 2019 U.S. corn acreage and production prospects at this time than percent planted – given questions about how prevented plantings may be included in the former measure of planting progress. 

The USDA reported that 92% of the 2019 corn crop in the 18 major states had been planted and that 92% had emerged as of June 16th in its latest USDA NASS Weekly Crop Progress report (Table 2).  In these top 18 states this amounts to 70,674,400 acres emerged out of 85,350,000 acres forecast in the March 28th USDA NASS Prospective Plantings report.  Note that the upcoming USDA Acreage report to be released on Friday, June 28th will provide an estimate of 2019 U.S. corn plantings on a state and national basis, and will take the place of the March 28th USDA Prospective Plantings report in these types of calculations. 

Extended to the entire U.S., 82% emerged on 6/16/2019 would equal 76,251,860 acres planted out of the USDA Prospective Plantings forecast for the U.S. of 92,792,000 acres of corn in year 2019.  Note that the USDA World Outlook Board had already lowered that forecast in its June 11th USDA World Agricultural Supply and Demand Estimates (WASDE) report.  Average U.S. corn emergence in the 18 major states on June 16th over the 5-year 2014-2018 period was 99%, with 6/16/2019 corn emergence being 17% and 6,620,900 acres behind in the 18 states, and an estimated 6,699,140  acres behind in the U.S. in total.

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A “Dynamic Base” Effect Is Occurring in 2019 USDA NASS Crop Progress Reports

Recent comments by USDA NASS administrators have indicated that these weekly USDA percent planting or emergence estimates are subject to a sort of “dynamic base” effect which may impact how they are to be interpreted.  By a “dynamic base” effect this author is referring to the approach apparently taken by farmers in reporting the progress of their field work and the development of the crop – which in turn is effected by how USDA asks its weekly crop progress report survey questions. 

Seemingly, farmers and anyone else who fills out these weekly surveys of crop progress take the approach of “rebasing” their expectations of crop progress relative to the status of the crop and their evolving planting intentions or crop development realities at the beginning of the weekly reporting period.  Their assessments of crop progress are based on their updated expectations instead of either their original intentions of planted acres OR regular historical rates of crop development.  

This tendency has been more of a critical issue in year 2019 because of the excessive cropland moisture situation that has occurred in the U.S. Corn Belt, and the delays in corn plantings it has caused. This is particularly relevant due to the likelihood of a much higher than normal amount of prevented planting acreage in 2019. 

Consequently, when farmers indicate they may be 100% completed in their plantings this year, it is likely to refer to their completion of all that they actually CAN plant – excluding those saturated and/or flooded acres that cannot be planted at least to corn in 2019 and that they have given up on for corn acreage this year.  Since farmers expectations regarding what their planted acres can reasonably BE planted in a saturated year such as 2019, then their BASE expectations are “dynamic”. 

After all this wrangling over definitions, in so many words, the 92% planted acreage estimate reported for June 16th by the USDA NASS Crop Progress report is likely overstated because U.S. farmers are implicitly accounting for either prevented plantings or switching to other crops as they fill out the reports of weekly corn planting completion for USDA. 

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2019 U.S. Corn Production Based on the June 16th U.S. Planted Acres Estimate

With only 82% or an estimated 76,251,860 acres of U.S. corn emerged to date, production prospects for the 2019 U.S. corn crop based on what is actually emerged so far are still down considerably.  In the USDA June 11, 2019 World Agricultural Supply and Demand Estimates (WASDE) report, forecast 2019 corn production in the U.S. to be 13.680 billion bushels (Tables 1a-b, Figure 7). 

 Based on the June 16th estimate of 82% of U.S. corn emerged – with 76,251,860 acres planted of the 92.792 ma originally intended.  Of these 76.25 ma now planted, it is estimated that 70,778,954 acres would be harvested (equaling latest 3-year average harvested-to-planted in the top 18 corn producing states).  With a 2019 U.S. average corn yield of 175 bu/ac, estimated corn production would equal 12.4 billion bushels (bb) (Table 2).  Alternatively, with a 2019 U.S. average corn yield of 167 bu/ac, estimated corn production would equal 11.25 bb.  Both of these projection are down substantially from the USDA’s June 11th WASDE projection of 13.680 bb.

This KSU calculation of 2019 U.S. corn production can be justly criticized for several reasons. 

First, it is likely based on too high of an estimate of percent (%) harvested-to-planted acres due to flooding and excessive moisture – having been set equal to the most recent 2016-2018 3-year average.  In the “new crop” MY 2019/20 U.S. corn supply-demand and price projections by Kansas State University that follow in Table 1b, it is assumed that final 2019 U.S. corn planted acreage is either 85.000 ma or 80.000 ma – down from the USDA June 11th WASDE estimate of 89.800 ma. 

As indicated earlier, the upcoming USDA Acreage report to be released on Friday, June 28th will provide an estimate of 2019 U.S. corn plantings on a state and national basis, and will take the place of the March 28th USDA Prospective Plantings report or the June 11th WASDE report in these types of calculations.

Second, it can also be criticized for having 2019 U.S. corn average yields set too high at 175 bu/acre for the initial scenario.  With delayed plantings and excessively wet soils it may be more prudent to consider an 8 bu/acre lower U.S. corn yield market of 167 bu/acre.  Note that there is a credible possibility of 2019 U.S. corn yields even lower than this – with scenarios of 166 bushels and 156 bushels per acre considered in KSU Alternative Projections in Table 1b.

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Prospects for Final 2019 U.S. Corn Planted & Harvested Acres

It is assumed in the following projections by Kansas State University Extension Agricultural Economist Daniel O’Brien that because of increasing new crop fall 2019 pricing opportunities and the requirement that crop acres be planted to receive a 2nd round of MFP payments, there will substantial amounts of additional U.S. corn acreage planted in early and mid-June 2019.  Most of these acres of U.S. corn will have been planted after U.S. crop insurance final planting dates (Table 1b).  In this analysis it is assumed that these additional plantings will still leave final U.S. corn planted acreage down to either 85,000,000 acres or 80,000,000 acres. 

Both of these estimates are down from the June 11th USDA WASDE estimate of 89,400,000 acres, and will be directly comparable to the updated USDA projection in the upcoming June 28th USDA Acreage report. Also due to the prevalent wet soils and flooded fields in many areas, the national percent harvested-to-planted is forecast at 88.0% – down from the estimate of 91.87% in the USDA June 11th WASDE report. 

  • 2019 U.S. Corn Planted Acres Scenarios #1 & #2: “85,000,000 acres” (55% probability)

For comparison, the USDA forecast of 89,400,000 acres of corn planted in 2019 is estimated to have a 20% probability of occurring according to KSU Ag Economist D. O’Brien estimates.  The combined estimated probability of there being closer to 85,000,000 acres of corn planed in KSU scenarios #1 and #2 is 55%.  Harvested acreage in this scenario is estimated to be 74,800,000 acres (i.e., 85.0 ma x 88.0% harvested-to-planted acres).

  • 2019 U.S. Corn Planted Acres Scenarios #3 & #4: “80,000,000 acres” (25% prob.)

With the USDA forecast of 89,400,000 acres of corn planted in 2019 estimated to have a 20% probability of occurring, and the KSU estimate of 85,000,000 acres thought to have a combined 55% probability in scenarios #1 & #2, the combined estimated probability of there being closer to 80,000,000 acres in KSU scenarios #3 and #4 is 25%.  Harvested acreage in this scenario is estimated to be 70,400,000 acres (i.e., 80.0 ma x 88.0% harvested-to-planted acres).

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World Corn Supply-Demand – Both W. & Without China

  • World Production

World corn production of 1,099.19 million metric tons (mmt) is projected for “new crop” MY 2019/20, down from 1,120.47 mmt in “old crop” MY 2018/19, up from 1,077.98 mmt in MY 2017/18, ut down from the record high of 1,125.21 mmt in MY 2016/17 (Figure 14).  The “new crop” 2019/20 marketing year will begin September 1, 2019 and continue through August 31, 2020. 

Forecast corn production in Argentina of 50.00 mmt in year 2020 would be “up marginally” from 49 mmt in 2019, up from the short crop of 32.00 mmt in 2018, and above 41.00 mmt produced in 2017.  Similarly, production in Brazil of 101.00 mmt forecast in year 2020 would be “unchanged” from year 2019, unchanged from the short crop of 82.00 mmt in year 2018, and up from 98.50 mmt in 2017.  A large portion of the corn harvests for Argentina and Brazil occur in the later half of September 1st – August 31st marketing years, i.e., February through August.  For “new crop” MY 2019/20, the Argentina and Brazil corn harvests will be during February-August in calendar year 2020.

  • World Total Supplies

World corn total supplies of 1,424.57 mmt are forecast for “new crop” MY 2019/20, down from the record high 1,459.72 mmt in “old crop” MY 2018/19, down from 1,429.44 mmt in MY 2017/18, and up from the previous record high of 1,436.93 mmt in MY 2016/17.   The estimates of World corn total supplies were adjusted approximately 14% higher in the November 8, 2018 WASDE report to address changes in Chinese domestic corn supply-demand balance sheets – with these adjustments carrying through to all following reports.

  • World Corn Exports

World corn exports are forecast to be 169.84 mmt, down from the record high 172.78 mmt for “old crop” MY 2018/19, up from 148.82 mmt in MY 2017/18, and up from 160.47 mmt in MY 2016/17 (Figure 14).

  • World Corn Ending Stocks & Percent (%) Stocks-to-Use

Projected World corn ending stocks of 290.52 mmt (25.62% S/U) in “new crop” MY 2019/20 are down from 325.38 mmt in “old crop” MY 2018/19, and down from 339.25 mmt (31.12% S/U) in MY 2017/18.  They are also down from the record high 351.46 mmt (33.14% S/U) in MY 2016/17, and down from 311.17 mmt (31.14% S/U) in MY 2015/16 (Figures 14 & 15a).    Projected Foreign (Non-U.S.) corn ending stocks of 247.96 mmt (26.32% S/U) in “new crop” MY 2019/20, are down from 269.61 mmt (28.64% S/U) in “old crop” MY 2018/19, and are down from 284.88 mmt (33.01% S/U) in MY 2017/18. 

Changes in Chinese corn ending stocks increased World corn ending stocks estimates by 93.0% in the November 2018 USDA WASDE report, and increased World ending stocks-to-use estimates from 14.39% in October 2018 up to 27.16% and 27.30% in the November 8th and December 11th WASDE reports, respectively, and to 27.40% in the February 8, 2019 WASDE.

  • “World-Less-China” Corn Ending Stocks & Percent (%) Stocks-to-Use

An alternative view of the World corn supply-demand is presented IF Chinese corn usage and ending stocks are isolated from the World market (Figures 15b-c).  “World-Less-China” corn ending stocks are projected to be 98.91 mmt (11.54% S/U) in “new crop” MY 2019/20, down from 115.54 mmt (13.45% S/U) in “old crop” MY 2018/19, and down from 116.73 mmt (14.46% S/U) in MY 2017/18.  These figures show that World % stocks-to-use of corn less China’s direct influence are projected to be 55.0% lower or “tighter” (i.e., 11.54% S/U for the “World-Less-China” versus 25.62% S/U for the “World” overall in “new crop” MY 2019/20). 

  • China’s Proportion of World Corn Ending Stocks

After the changes in World corn supply-demand reported in the November 8th WASDE report, which were carried forward into the December 11th and February 8, 2019 reports, the USDA showed that estimates of Chinese ending stocks of corn as proportion of the World total have increased significantly from the October 2018 WASDE report.   The percent of World corn stocks held by China has grown at an increasing but slowing rate since MY 2007/08 through “old crop” MY 2018/19.  In recent years, this proportion grew from 55.91% in MY 2012/13, up to 57.65% in MY 2013/14, 61.9% in MY 2014/15, 68.0% in MY 2015/16, 63.45% in MY 2016/17, 65.6% in MY 2017/18, and 64.5% in “old crop” 2018/19, and are now projected to be 66.0% in “new crop” MY 2019/20. 

While China’s percent of World corn stocks is estimated to have increased with these new USDA figures, “World-Less-China” percent (%) corn ending stocks-to-use are forecast to be 11.54% in “new crop” MY 2019/20, the lowest percentage in 7 years (Figures 15a-b)“World-Less-China” corn stocks-to-use was 9.46%-9.92% during the years of MY 2011/12 – MY 2012/13, but increased to the range of 12.25% to 13.85% during the MY 2013/14 through MY 2015/16 period.  Then after a high of 15.94% in MY 2016/17, “World-Less-China” corn ending stocks-to-use declined to 14.11% in MY 2017/18, and 13.45% in “old crop” MY 2018/19, and is projected to decline further to 11.54% in “new crop” MY 2019/20.   This decline supports the idea that corn stocks outside of China are “tightening up” considerably – and that the overall World corn market has an increasing possibility of seeing sharply higher prices in the near future if these trends continue.

 

 

KSU Corn Market Outlook in Late-May 2019: ‘Tight Supply-Demand & Higher Corn Prices in “New Crop” MY 2019/20’

An analysis of Corn Market Outlook in Late-2019 for “new crop” 2019/20 marketing years is provided in the following article from Kansas State University Department of Agricultural Economics.  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) and other USDA reports on May 10, 2019, with info from the USDA NASS Crop Progress reports on May 26, 2019

A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

Following is a summary of the article on “Corn Market Outlook in Late-May 2019″

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U.S. Corn Market Outlook in Late-May 2019

‘Tight Supply-Demand & Higher Corn Prices in “New Crop” MY 2019/20’

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

May 29, 2019

 

1) The U.S. Corn Market Situation in Spring 2019

The serious and prolonged spring planting season problems during April-May 2019 for U.S. corn producers are leading to a sharp reduction in 2019 U.S. corn production prospects.  The likelihood of a U.S. corn production shortfall in year 2019 is bring about a classic “short crop” marketing year for U.S. corn markets in “new crop” MY 2019/20. The last major “short crop” for U.S. corn production occurred seven (7) years ago in year 2012 due to excessive summer heat.    

Concerns about delayed plantings or even the potential inability to plant corn or other crops this year have driven corn futures sharply higher in recent weeks.   “Old crop” JULY 2019 Corn futures prices have increased from a low of $3.43 /bushel on May 13th to a high of $4.38 on May 29th before closing at $4.18 ¾ that same day.  Similarly, “new crop” DEC 2019 Corn futures prices have increased from a low of $3.63 ¾ /bushel on May 13th to a high of $4.54 on May 29th before closing at $4.35 ¾ that same day (Figures 1a-b-c, & 2a-b).   With this rally in corn futures, managed money (specs) who had been holding record short or bearish positions have begun to buy back their short futures positions and instead build up the long or buy side of trade portfolios (Figures 3a-b-c-d).

The U.S. government is also planning to provide a second round of Market Facilitation Payments (MFPs) to U.S. crop producers, with the stipulation that crops have to be actually planted in year 2019 to collect these MFP funds.  The longer into June 2019 these U.S. corn planting delays go, the more difficult it may be for U.S. corn producers to keep with their original plans to plant corn this year, and not switch to other shorter season cropping options such as soybeans and grain sorghum.   

It is an oversimplification to say that the direction of the U.S. corn market for the remainder of “current” MY 2018/19 (ending August 31st) and the start of “new crop” MY 2019/20 (starting September 1st) will depend largely on the amount of U.S. corn acres planted over the coming few weeks through June 2019.  During that period U.S. farmers will likely be “under duress” as they make what may be difficult late season planting decisions.

*****

2) Status of Delayed U.S. Corn Plantings Through May 26th

The U.S. Corn Belt states that have been hardest hit by wet weather, flooding and planting delays so far in 2019 are Illinois, Indiana, Michigan, Ohio, South Dakota and Wisconsin (Tables 2a-b).  Significant wet soil conditions and planting delays have also occurred in Iowa, Kansas, Minnesota, Missouri, Nebraska, and Pennsylvania.   In these are other states many U.S. farmers who have not yet been able to plant all or part of their 2019 corn acreage are considering either late plantings of corn, switching to alternative shorter season crops such as soybeans, or possibly using Prevented Planting options from the USDA Farm Service Agency.

The USDA reported that 58% of the 2019 corn crop in the 18 major states had been planted as of May 26th in its latest USDA NASS Weekly Crop Progress report (Table 2a).  In these top 18 states this amounts to 49,131,600 acres planted out of 85,350,00 acres forecast in the March 28th USDA NASS Prospective Plantings report

Extended to the entire U.S., 58% planted on 5/26/2019 would equal 53,819,360 acres planted out of the USDA Prospective Plantings forecast for the U.S. of 92,792,000 acres of corn in year 2019.   Average corn plantings in the 18 major states on May 26th over the 5-year 2014-2018 period are 90%, with 5/26/2019 corn plantings being 32% and 27,844,900 acres behind in the 18 states and an estimated 29,693,440 acres behind in the U.S. in total.

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3) 2019 U.S. Corn Production Based on the May 26thS. Planted Acres Estimate

With only 58% or an estimated 53.8 million acres of U.S. corn planted to date, production prospects for the 2019 U.S. corn crop based on what is actually planted so far are down considerably.  In the USDA May 10, 2019 World Agricultural Supply and Demand Estimates (WASDE) report, forecast 2019 corn production in the U.S. to be 15.030 billion bushels (Tables 1a, 1b, & 2b). 

 This is based on the May 26th estimate of 58% of U.S. corn planted – amounting to 53.8 million acres (ma) planted of the 92.792 ma originally intended.  Of these 53.8 ma now planted, it is estimated that 49.460 ma would be harvested (equaling latest 3-year average harvested-to-planted in the top 18 corn producing states), with a 2019 U.S. average corn yield of 175 bu/ac, and that estimated corn production would equal 8.655 billion bushels (bb) (Table 2b). 

This estimate of 2019 U.S. corn production prospects to date can be criticized for several reasons. 

First, it is likely based on too high of an estimate of % harvested-to-planted acres due to flooding and excessive moisture – having been set equal to the most recent 2016-2018 3-year average. 

Second, it can also be criticized for having 2019 U.S. corn average yields set too high at 175 bu/acre.  With delayed plantings and excessively we soils it may be more prudent to consider an 8 bu/acre lower U.S. corn yield market of 167 bu/acre.  At 167 bu/ac yields, 2019 U.S. corn production on 53.819 ma planted and 49.460 ma harvested would be 8.260 bb – down substantially from the USDA’s May 10th WASDE projection of 15.030 bb. 

Third, these early projections for 2019 of U.S. corn planted acres of 53.819 ma, and of 8.260 bb in 2019 U.S. corn production do not account for the progress that will continue to be made in U.S. corn plantings from May 26th through the month of June.  In the “new crop” MY 2019/20 U.S. corn supply-demand and price projections by Kansas State University that follow in Table 1b, it is assumed that final 2019 U.S. corn planted acreage is either 82.792 ma or 77.792 ma.

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4) Prospects for Final 2019 U.S. Corn Planted & Harvested Acres

It is assumed in the following projections by Kansas State University Extension Agricultural Economist Daniel O’Brien that substantial amounts of additional U.S. corn acreage will be planted from now through June 2019 (Table 1b).  In this analysis it is assumed that these additional plantings will leave final U.S. corn planted acreage down 10-15 ma below the USDA’s Prospective Plantings report forecast on 3/29/2019 of 92.792 ma, but still up 24-29 ma from levels represented in the May 26th planting progress estimates.

  • U.S. Corn Planted Acreage Scenarios #1 & #2: “Down 10 ma 2019 U.S. Corn Plantings”:

As shown in Table 1b, IF 82.792 ma of corn is eventually planted in the U.S. in 2019, total corn plantings would be down 10 ma from initial USDA projections of 92.792 ma in the March 29th USDA Prospective Plantings report.  However, they would also represent an additional 28.973 ma yet to be planted in year 2019 from May 26th levels. 

Due to wet soils and flooded fields in many areas, the national percent harvested-to-planted is forecast to be 88.0%, just above the recent low of 87.9% in year 2002. Harvested acreage estimated to be 72.857 ma – down from 84.500 ma in the USDA’s May 10th WASDE report.

  • S. Corn Planted Acreage Scenarios #3 & #4: “Down 15 ma 2019 U.S. Corn Plantings”:

Also shown in Table 1b, IF 77.792 ma of corn is eventually planted in the U.S. in 2019, total corn plantings would be down 15 ma from initial USDA projections of 92.792 ma in the March 29th Prospective Plantings report.  However, they would also represent an additional 23.973 ma yet to be planted in year 2019 from May 26th levels. 

Also due to the prevalent wet soils and flooded fields in many areas, the national percent harvested-to-planted is forecast at 88.0%, with harvested acreage estimated to be 68.457 ma – down from 84.500 ma in the USDA’s May 10th WASDE report.

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5) Prospects for U.S. Corn Supply-Demand & Prices in “New Crop” MY 2019/20

Given the KSU 2019 U.S. corn reduced planted and harvested acre projections in Table 1b, projected 2019 U.S. corn production is substantially lower than the USDA’s May 10th WASDE forecast of 15.030 bb.  For the “new crop” 2019/20 marketing year to begin on September 1, 2019, this leads to substantially reduced U.S. corn supplies, significant rationing of U.S. corn usage and tightening of ending stocks and stocks-to-use and much higher U.S. corn prices.  The first scenario represents the USDA projection for “new crop” MY 2019/20 from the May 10, 2019 WASDE report.

Alternative scenarios for 2019 U.S. corn acreage and yields are presented in Figures 5 & 6, with varying 2019 U.S. corn production scenarios in Figure 7.  Alternative U.S. corn ending stocks-to-use scenarios for “new crop” MY 2019/20 are presented in Figures 12-a-b, while the relationship that has existed between U.S. corn percent (%) ending stocks-to-use and U.S. Average Corn prices is shown in Figure 13

Scenario A. USDA May 2019 WASDE Forecast for “New Crop” MY 2019/20 – 0% Probability:

Planted Acres                                     92.792 million acres (ma)

Harvested Acres                                  85.400 ma

% Harvested-to-Planted                      92.0%

U.S. Average Corn Yield                       176 bu/ac

Beginning Stocks                                 2.095 billion bushels (bb)

2019 U.S. Corn Production                15.030 bb

Imports                                                  0.035 bb

Total U.S. Corn Supply                       17.160 bb

Ethanol for Fuel Use                            5.500 bb

Food & Industrial Use                            1.435 bb

Seed Use                                                0.030 bb

Exports                                                    2.275 bb

Feed & Residual Use                               5.450 bb

Total U.S. Corn Use                             14.675 bb

Ending Stocks                                          2.485 bb

% Ending Stocks-to-Use                       16.93%

U.S. Corn Season Avg. Farm Price           $3.30 /bu

Note: With the planting problems that have occurred in the U.S. in April-May 2019, the May 10th WASDE market scenario for “new crop” MY 2019/20 has virtually no likelihood of occurring.

 

Scenario #1MY 2019/20-KSU: Less 10 mln ac Planted, 172 bu/ac Yield, 12.531 bb Crop – 35% Probability:

Planted Acres                                     82.792 million acres (ma)  (less 10 ma vs USDA)

Harvested Acres                                  72.857 ma                                (less 12.5 ma vs USDA)

% Harvested-to-Planted                    88.0%                                        (less 4.0% vs USDA)

U.S. Average Corn Yield                    172 bu/ac                                 (less 4.0 bu/ac vs USDA)

Beginning Stocks                                  2.095 billion bushels (bb)

2019 U.S. Corn Production              12.531 bb                                (less 2.499 bb vs USDA)

Imports                                                   0.035 bb

Total U.S. Corn Supply                     14.661 bb                                (less 2.499 bb vs USDA)  

Ethanol for Fuel Use                           5.250 bb                                (less    250 mb vs USDA)

Food & Industrial Use                         1.420 bb                                   (less      15 mb vs USDA)

Seed Use                                                0.032 bb                                   (up          2 mb vs USDA)

Exports                                                    1.709 bb                                 (less    566 mb vs USDA)

Feed & Residual Use                            5.000 bb                                  (less    450 mb vs USDA)

Total U.S. Corn Use                           13.411 bb                                (less  1.235 bb vs USDA)

Ending Stocks                                         1.250 bb                                (less  1.235 bb vs USDA)

% Ending Stocks-to-Use                         9.32%                                 (less      7.61% vs USDA)

U.S. Corn Season Avg. Farm Price        $4.35 /bu                         (up  $1.05 /bu vs USDA)

Note: In this scenario, significant rationing of grain use occurs, with prices increasing to make that occur.   

******

 

Scenario #2MY 2019/20-KSU: Less 10 mln ac Planted, 167 bu/ac Yield, 12.167 bb Crop – 35% Probability:

Planted Acres                                     82.792 million acres (ma)  (less 10 ma vs USDA)

Harvested Acres                                   72.857 ma                               (less 12.5 ma vs USDA)

% Harvested-to-Planted                       88.0%                                     (less 4.0% vs USDA)

U.S. Average Corn Yield                    167 bu/ac                                 (less 9.0 bu/ac vs USDA)

Beginning Stocks                                  2.095 billion bushels (bb)

2019 U.S. Corn Production              12.167 bb                                (less 2.863 bb vs USDA)

Imports                                                 0.035 bb

Total U.S. Corn Supply                    14.297 bb                                 (less 2.863 bb vs USDA)  

Ethanol for Fuel Use                          5.225 bb                                (less    275 mb vs USDA)

Food & Industrial Use                         1.420 bb                                  (less      15 mb vs USDA)

Seed Use                                             0.032 bb                                     (up          2 mb vs USDA)

Exports                                                1.570 bb                                    (less    705 mb vs USDA)

Feed & Residual Use                          4.950 bb                                   (less    500 mb vs USDA)

Total U.S. Corn Use                        13.197 bb                                  (less  1.478 bb vs USDA)

Ending Stocks                                         1.100 bb                               (less  1.385 bb vs USDA)

% Ending Stocks-to-Use                         8.34%                                (less      8.59% vs USDA)

U.S. Corn Season Avg. Farm Price    $5.45 /bu                            (up  $2.15 /bu vs USDA)

Note: In this scenario, further significant rationing of grain use occurs, with prices increasing to over $5.00 to make that occur on very limited supplies.  The implicit assumption in these supply-demand scenarios is that U.S. corn markets are likely to be reticent to allow U.S. corn ending stocks to move much below 1.0 bb.    

*****

 

Scenario #3MY 2019/20-KSU: Less 15 mln ac Planted, 172 bu/ac Yield, 11.775 bb Crop – 15% Probability:

Planted Acres                                     77.792 million acres (ma)     (less 15 ma vs USDA)

Harvested Acres                                   68.457 ma                              (less 16.9 ma vs USDA)

% Harvested-to-Planted                       88.0%                                        (less 4.0% vs USDA)

U.S. Average Corn Yield                      172 bu/ac                                  (less 4.0 bu/ac vs USDA)

Beginning Stocks                                 2.095 billion bushels (bb)

2019 U.S. Corn Production             11.775 bb                                    (less 3.255 bb vs USDA)

Imports                                                0.035 bb

Total U.S. Corn Supply                    13.905 bb                                    (less 3.255 bb vs USDA)  

Ethanol for Fuel Use                          5.150 bb                                    (less    350 mb vs USDA)

Food & Industrial Use                          1.400 bb                                     (less      35 mb vs USDA)

Seed Use                                              0.033 bb                                        (up          3 mb vs USDA)

Exports                                                 1.472 bb                                       (less    803 mb vs USDA)

Feed & Residual Use                            4.850 bb                                     (less    600 mb vs USDA)

Total U.S. Corn Use                          12.905 bb                                    (less  1.770 bb vs USDA)

Ending Stocks                                       1.000 bb                                     (less  1.485 bb vs USDA)

% Ending Stocks-to-Use                    7.75%                                         (less      9.18% vs USDA)

U.S. Corn Season Avg. Farm Price      $5.70 /bu                              (up  $2.40 /bu vs USDA)

Note: In this scenario, with only 77.792 ma planted and production of 11.775 bb, ending stocks fall to 1.000 bb and prices increase to $5.70 /bu to ration usage.    

*****

 

Scenario #4MY 2019/20-KSU: Less 15 mln ac Planted, 167 bu/ac Yield, 11.432 bb Crop – 15% Probability:

Planted Acres                                    77.792 million acres (ma)      (less 15 ma vs USDA)

Harvested Acres                                  68.457 ma                                   (less 16.9 ma vs USDA)

% Harvested-to-Planted                    88.0%                                           (less 4.0% vs USDA)

U.S. Average Corn Yield                    167 bu/ac                                    (less 9.0 bu/ac vs USDA)

Beginning Stocks                                  2.095 billion bushels (bb)

2019 U.S. Corn Production              11.432 bb                                   (less 3.598 bb vs USDA)

Imports                                                   0.035 bb

Total U.S. Corn Supply                     13.562 bb                                   (less 3.598 bb vs USDA)  

Ethanol for Fuel Use                           5.100 bb                                   (less    400 mb vs USDA)

Food & Industrial Use                         1.400 bb                                      (less      35 mb vs USDA)

Seed Use                                                0.033 bb                                      (up          3 mb vs USDA)

Exports                                                    1.379 bb                                    (less    896 mb vs USDA)

Feed & Residual Use                            4.750 bb                                     (less    700 mb vs USDA)

Total U.S. Corn Use                           12.662 bb                                   (less  2.013 bb vs USDA)

Ending Stocks                                         0.900 bb                                   (less  1.585 bb vs USDA)

% Ending Stocks-to-Use                         7.11%                                    (less      9.18% vs USDA)

U.S. Corn Season Avg. Farm Price    $6.00 /bu                                (up  $2.70 /bu vs USDA)

Note: In this scenario, with only 77.792 ma planted and production of 11.432 bb, ending stocks fall below 1.000 bb down to 900 mb, with U.S. corn prices increasing to near $6.00 /bu to further ration usage.    

 

U.S. Ethanol and Biodiesel Markets and Profitability – Moderate Losses for Ethanol and Biodiesel in April to Date

A. Ethanol Price and Profitability Trends

By Iowa State University estimates, ethanol plants in Iowa and other Midwest states were operating at losses of $0.10 to $0.23 per gallon from September 2018 through March 2019 – with $0.14 /gallon losses in March 2019.  By Kansas State University calculations, these losses extended into the April 1-19 period, with losses of $0.12 / gallon.

During the April 1-19, 2019 period, corn input purchase prices for Iowa ethanol plants averaged $3.47 /bu – compared to 3.55 /bu in March.  Selling prices of distillers dried grains (DDGS) (10% moisture) averaged $138.17 /ton during April 1-19, up from $135.77 /ton a month earlier. The selling price of ethanol via tank car and truck shipment out of Iowa ethanol plants has averaged $1.29 /gallon during April 1-19, down from $1.3086 /gallon in March.

Overall, during the April 1-19, 2019 time frame, the estimated cost of production of a representative ethanol plant in Iowa has averaged $1.41 per gallon – comparable to $1.45 per gallon in March, and $1.44 in February.  This has lead to an estimated average negative net return of minus $0.12 per gallon produced so far in April 2019, with is comparable to losses of $0.14 /gallon in March and losses of $0.23 /gallon in February 2019.

******

B. Ethanol Production & Stocks Trends

Since the beginning of the “current” 2018/19 marketing year (MY) for U.S. corn on September 1, 2018, U.S. ethanol production has averaged 1.026 million barrels per week over 32 weeks. At this average pace, U.S. ethanol production would reach 15.730 billion barrels in “current” MY 2018/19.  Further, at a rate of 2.83 gallons of ethanol per bushel of feedgrain used for ethanol production (corn and/or grain sorghum), at total of 5.558 billion bushels of feedgrains would be used for ethanol production in the current marketing year.

The USDA’s latest World Agricultural Supply and Demand Estimates (WASDE) report on April 9, 2018 seem to account for this.  In the April WASDE report the USDA projected that in current MY 2018/19 a total of 5.500 billion bushels (bb) of U.S. corn would be used for ethanol production, and that 100 million bushels (mb) of U.S. grain sorghum would be used for Food, Seed, and Industrial (FSI) uses – which is primarily industrial ethanol production.

However, the pace or weekly rate of U.S. ethanol production has slowed marginally during February – April 2019 (to date) compared to the September 2018 through January 2019 period.  For September 2018 through January 25, 2019, U.S. ethanol production averaged 1.034 billion barrels per week, while that rate slowed 3.1% to 1.004 per week for the weeks ending February 1st through April 12th.

At the same time U.S. ethanol stocks have remained at historically high levels – burdening the ethanol market and having a negative impact on U.S. ethanol prices.  To explain, for the “current” 2018/19 marketing year period from September 1, 2018 through the week ending April 12th, U.S. ethanol stocks have averaged 23.463 million barrels (mln brls) per week.  This compares to average end of week ending stocks for previous U.S. corn marketing years of 22.201 mln brls per week in “old crop” MY 2017/18; 21.259 mln brls per week in MY 2016/17; 20.846 mln brls in MY 2015/16; 19.466 mln brls in MY 2014/15; 16.618 mln brls per week in MY 2013/14; 18.104 mln brls per week in MY 2012/13; 19.569 mln brls per week in MY 2011/12; and 18.416 mln brls per week in MY 2010/11.  These data show the growing in U.S. ethanol stocks over the last few marketing years, and highlight the record size of U.S. ethanol supplies that burden the U.S. ethanol market at the present time.

C. Biodiesel Price & Profitability Trends

Reductions have also occurred in the estimated profitability of Biodiesel plants in Iowa and nearby states – although the losses are comparatively small relative to ethanol producing facilities during the April 1-19, 2019 period.

By Kansas State University estimates, during the April 1-19, 2019 period, soybean oil input purchase prices for Iowa biodiesel plants averaged $28.40 per cwt – down from an average price $29.13 /cwt in March 2019.   This occurred while Biodiesel selling prices averaged $2.77 /gallon during 4/1-19/2019, being down from $2.87 /cwt in March.

Also during the April 1-19 period, the cost of production at representative biodiesel plants in Iowa has averaged $2.81 per gallon – down from $2.86 per gallon March.  As a result, net returns of soy biodiesel product were down $0.05 /gallon, with a loss of $0.04 per gallon produced.  This is comparable to monthly average profits of $0.01-$0.02 /gallon during the January-March 2019 period. 

**********

Following are some graphics on U.S. Ethanol and Biodiesel Market price and profitability trends in the , which will soon be available on the KSU AgManager website:  http://www.agmanager.info/

The full presentation titled “U.S. Ethanol & Biodiesel Market Situation” made for WILL (Illinois Public Radio) on Tuesday, April 23, 2019 and will be located at the KSU AgManager.info website – at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

 

Following are the graphics of this presentation.

U.S. Ethanol and Biodiesel Market-Profitability Graphics — Breakeven Operations But Flooding Disruptions in Places

Ethanol Price and Profitability Trends Through Late March 2019

By Kansas State University estimates, ethanol plants in Iowa and other Midwest states were operating at losses of $0.10 to $0.29 per gallon from September 2018 through February 2019, but were showing losses of $0.14 / gallon during the first three weeks of March 2019. A moderate increase in ethanol prices in March is the key factor causing the moderation in losses.

During the March 1-22, 2019 period, corn input purchase prices for Iowa ethanol plants averaged $3.53 3/4 /bu (compared from $3.57 /bu in February, and $3.54 in January).  Selling prices of distillers dried grains (DDGS) (10% moisture) have averaged $136.78 /ton during the March 1-22 period, down from $155 & $140 /ton in January and February, respectively). The selling price of ethanol via tank car and truck shipment out of Iowa ethanol plants has averaged $1.31 /gallon, up from $1.17 & $1.21 /gallon in January & February, respectively.

During March 1-22, 2019, the estimated cost of production of a representative ethanol plant in Iowa has averaged $1.45 per gallon – comparable to $1.42 per gallon in January and $1.47 in February.  This has lead to an estimated negative net return of minus $0.14 per gallon produced so far in March 2019, with is comparable to losses of $0.24 /gallon in January and losses of $0.26 /gallon in February 2019.

 

Biodiesel Price & Profitability Trends Through Late-March 2019

Reductions have also occurred in the estimated profitability of Biodiesel plants in Iowa and nearby states – although they are still estimated to have in essence broken even during the March 1-22, 2019 period.

During March 1st to 22nd, soybean oil input purchase prices for Iowa biodiesel plants averaged $29.49 per cwt – down from $30.11 /cwt in February.   This occurred while Biodiesel selling prices averaged $2.90 /gallon during 3/1-22/2019, being down from $2.96 /cwt in February.

Also during the March 1-22 period, the cost of production at representative biodiesel plants in Iowa has averaged $2.90 per gallon – down from $2.84 per gallon February.  As a result, net returns of soy biodiesel product were level, or breakeven, with a profit of loss of $0.00 per gallon produced.  This is comparable to profits of $0.02 /gallon in February, and breakeven in January. 

**********

Following are some graphics on U.S. Ethanol and Biodiesel Market price and profitability trends in the , which will soon be available on the KSU AgManager website:  http://www.agmanager.info/

The full presentation titled “U.S. Ethanol & Biodiesel Market Situation” made for WILL (Illinois Public Radio) on Tuesday, March 26, 2019 and will be located at the KSU AgManager.info website – at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

 

Following are the graphics of this presentation.

   

KSU Corn Market Outlook in Mid-February 2019: U.S. Corn Supply-Demand and Prices for 2019

An analysis of Corn Market Situation & Outlook in mid-February 2019 for the remainder of the “current”  2018/19 and “next crop” 2019/20 marketing years is provided in the following article from Kansas State University Department of Agricultural Economics.  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) and other USDA reports on February 8, 2019.

A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

Following is a summary of the article on “Corn Market Outlook in Mid-February 2019″

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Corn Market Outlook in Mid-February 2019

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

February 13, 2019

1) Introduction – An Overview of the U.S. Corn Market & USDA Reports

1A – Corn Market Overview

While the U.S. and World corn market has adequate supplies at this time, ending stocks have been trending lower since the 2016/17 marketing year (MY).  Market projections from the USDA are for this “tightening up” to continue through “next crop” MY 2019/20 which begins on September 1, 2019 and will last through August 31, 2020.   By its’ behavior, it is evident that the U.S. corn market continues to have a group “narrative view” that supplies of U.S. corn will remain plentiful through at least mid-summer 2019. 

Unless a short crop develops in South America in coming months, or there are serious corn planting delays in April-May 2019 in the United States – this predominant market narrative that there are“more than adequate U.S. corn supplies” will continue to limit any major upward movement in U.S. corn prices throughout Spring, Summer and Fall 2019.

Corn market price expectations in year 2019 are heavily influenced by seasonal grain futures price patterns over the most recent years and decades.  Over the last 20 years the frequency of economically important price increases in DEC Corn futures from February to November is 25%.  This occurred in years 2002 (up $0.20 /bu), 2006 (up $0.44 /bu), 2010 (up $1.47 /bu), 2011 (up $0.31 /bu), and 2012 (up $1.82 /bu).   No such increase in DEC Corn futures from the preceding February to the following November has occurred in the last six (6) years – since the major U.S. drought and resulting short crop of year 2012.  Since year 2012, February averages of DEC Corn futures have been greater than average prices for the following month of November by $1.26 /bu in 2013, $1.13 in 2014, $0.32 in 2015, $0.37 in 2016, $0.47 in 2017, and $0.28 in 2018.           

Consequently (and conversely), 75% of the time over the last two decades the monthly average of DEC Corn futures during the previous February have been greater than during the following November just ahead of the DEC Corn futures closing month.  Taking all these things together, the “consensus narrative opinion” of the corn market at this time seems to be that there will NOT be significant corn production problems in either South America or the United States this year.  As a result, DEC 2019 corn futures prices are most likely to end up equal to or lower than current mid-February levels near $4.00 per bushel once we get to Fall 2019.

1B – U.S. Corn Market Factors “Taken Together”

Considering all these factors together, the outlook for U.S. corn markets in 2019 will continue to be conservative due to large domestic corn supplies, but with upward potential based on prospects for moderate strength in domestic use and exports due to tighter foreign corn supply-demand balances”.  

1C – The USDA’s Reports on February 8, 2019

On February 8, 2019 the United States Department of Agriculture (USDA) released a set of reports providing market information that had been “back-logged” since December 11, 2018 – the last USDA agricultural market information released before the recent U.S. Federal government shutdown. 

The World Agricultural Outlook Board (WAOB) released its World Agricultural Supply and Demand (WASDE) estimates (https://www.usda.gov/oce/commodity/wasde/) after cancelling the scheduled January 11th report due to the U.S. government shutdown.

Similarly, the National Agricultural Statistical Service (NASS) released the latest Grain Stocks report for December 1, 2018 U.S. grain stocks levels, the 2019 Winter Wheat & Canola Seedings report, the February 2019 Crop Production report, and the 2018 Annual Crop Production Summary report (https://www.nass.usda.gov/Publications/Calendar/reports_by_date.php

The USDA Foreign Agricultural Service (FAS) also released it’s February 2019 reports on World Agricultural Production, and separate reports on World Markets and Trade for Grain and Oilseeds (https://www.fas.usda.gov/data-analysis/scheduled-reports-2019).  

 

2) “Limiting” 2019 Corn Market Factors as of February 13, 2019

There are several corn market supply-demand factors that are major determinants in corn market price direction, and that at this time provide resistance to corn prices moving higher.  These include historically large 2018 U.S. corn production and total U.S. corn supplies in “current crop” MY 2018/19, and “moderating” but demand for U.S. corn ethanol use.

2A – U.S. Corn Production in Year 2018 & Expectations for Year 2019:

  • The most important “negative” or at least “limiting” corn market factor continues to be the projected size of the 2018 U.S. corn crop at 420 billion bushels (bb) – forecast to be the third highest on record behind 15.148 bb in 2016, and 14.601 bb in 2017 (Table 1 & Figures 5-7).
  • In the February 8, 2019 USDA Annual 2018 Crop Production Summary report the USDA lowered its’ projection of 2018 U.S. corn production by 206 million bushels (mb) down to 14.420 bb due to late harvest and other production limiting influences in parts of the United States. If this decline in 2019 U.S. corn crop size occurred by itself with no other supply-demand adjustments, it would be at least a moderately positive factor for U.S. corn market prices. 
  • However, in the February 8th WASDE report the USDA also made offsetting reductions in projected U.S. corn ethanol use, non-ethanol food-seed-industrial (FSI) use, and feed and residual use in its’ “current crop” MY 2018/19 supply-demand balance sheet. These projected reductions in U.S. corn usage in “current crop” MY 2018/19 offset nearly ¾ (i.e., 146 mb) of the reduction in year 2018 projected U.S. corn production and supplies.  As a result of hese offsetting changes, the  netted a 46 mb reduction in projected ending stocks in “current crop” MY 2018/19. 
  • The USDA’s updated preliminary forecast from its Long Term Agricultural Projections released in fall 2018 are for 2019 U.S. corn production to be 14.930 bb. This amount of U.S. corn production in 2019 would very likely cause a continuation of the “large supplies – moderate-to-large stocks” situation in the U.S. corn market that has existed since the drought that occurred in the 2012/13 marketing year.

2B – Total U.S. Corn Supplies in “Current” MY 2018/19 & “Next Crop” MY 2019/20

  • In addition to a 14.420 bb U.S. corn crop in 2019, the USDA projects total supplies of U.S. corn in the “current crop” 2018/19 marketing year (MY) to be 600 bb. Although this figure was reduced 211 mb in the February 8th WASDE report, it is still the third highest on record – continuing to provide downward pressure on U.S. corn prices.  Total supplies of U.S. corn in MY 2016/17 were a record high of 16.942 bb, and were only marginally lower at 16.939 bb in “old crop” MY 2017/18 which ended on August 31, 2018 (Table 1 & Figure 7).
  • The USDA’s preliminary forecast of S. total corn supplies for “next crop” MY 2019/20 are approximately 16.715 bb after accounting for recent changes in implied USDA beginning stocks projections. “Next crop” MY 2019/20 will begin on September 1, 2019.  These figures are available from the USDA’s updated Long Term Agricultural Projections released in fall 2018.

2C – U.S. Ethanol Use of Corn

  • According to Energy Information Administration (EIA) data, for the period of September 1, 2018 through February 7, 2019, S. ethanol production has averaged 1.034 million barrels per day (range of 0.967 to 1.069 mb/d). Assuming 42 gallons of ethanol per barrel, and 2.8 gallons of ethanol per bushel of either corn or grain sorghum used in the production process, this rate of U.S. ethanol production would result in 5.529 bb of U.S. feedgrain use for ethanol in “current” MY 2018/19. 
  • It is assumed here that approximately 80-100 mb of S. grain sorghum will be used for ethanol production in “current crop” MY 2018/19 (i.e., versus 110 mb in total food, seed & industrial use of U.S. grain sorghum in the February 8, 2019 WASDE report). As a result, at the current pace of usage there would be 5.430-5.450 bb of U.S. corn used for ethanol production over the same period. 
  • Projected S. ethanol use of 5.430-5.450 bb of corn would be down 125-145 mb from the USDA’s projection of a near record 5.575 bb use for ethanol for “current” MY 2018/19 (Table 1, Figures 9abc-10). The USDA lowered its February 8th WASDE projection of U.S. corn use in ethanol production in “current” MY 2018/19 by 25 mb to 5.575 bb due to operating losses in U.S. ethanol plants during the September 2018 through January 2019 period, and expectations by the USDA of lower ethanol production as a result.
  • The Environmental Protection Agency’s (EPA’s) recent action to approve the use of E-15 gasoline blends on a season-round basis in U.S. motor fuels may lead to increased feedgrain use for ethanol during the remainder of “current” MY 2018/19 and in coming years.

3) “Supporting” 2019 Corn Market Factors as of February 13, 2019

There are also neutral-to-positive factors providing positive support for U.S. corn supply-demand and price prospects – including “moderating” but still historically strong demand for U.S. corn ethanol use and exports, and the risk of lower 2019 South American corn acreage and production prospects.

3A – U.S. Corn Exports

  • United States’ corn exports have been strong to date in the “current crop” 2018/19 marketing year – with shipments at a seven (7) year high through early February 2019. The USDA forecast that U.S. corn imports would reach 450 bb in exports for “current” MY 2018/19.  For the weeks ending January 17th, 24th, 31st and February 7th, the U.S. had corn export shipments of 44.4 mb, 35.2 mb, 35.5 mb, and 29.3 mb, respectively.  These were behind the pace of 53.0 mb needed to meet the USDA forecast of 2.450 bb.  At the most recent 4-week average pace of 36.1 mb/week, U.S. corn exports would reach 1.961 bb by the end of the marketing year – down 489.4 mb or 20% from the February 8, 2019 USDA WASDE projection.
  • Accumulated U.S. corn export shipments of 732.3 mb as of December 27th (just prior to the recent U.S. government shutdown) were 29.9% of the 2.450 bb USDA projection for “current” MY 2018/19 with what at that time was 32.7% (i.e., 17 of 52 weeks) of the marketing year completed. Total shipments and forward sales as of 12/27/2018 were approximately 1.253 bb – equaling 51.1% of the USDA’s 2.450 bb projection with 32.7% (i.e., 17 of 52 weeks) of “current” MY 2018/19 completed (Table 1 & Figures 10-11)

3B – Uncertain 2019 Prospects for South American Corn & Soybean Production

  • 2019 Brazil Soybean Production: Dry conditions in key agricultural areas of Brazil have caused declines of 5% to 8% in projected 2019 soybean production in that country – from early season projections of 120-122 million metric tons (mmt) down to 112-115 mmt. With parts of the country farther north and closer to the Equator, the Brazilian soybean harvest typically begins in early January and lasts through the end of May.  So, the majority of the Brazil harvest remains, with more accurate information yet to come.  The 2019 soybean crops in Brazil and Argentina will be counted in the “current” MY 2018/19 marketing year which extends to August 31, 2019. 
  • 2019 Argentina Soybean Production: Growing conditions in Argentina are generally estimated to be “wet”, but with no major concerns about crop damage to date. Being farther south, the Argentina soybean harvest typically begins in early March and lasts through the end of May.  Just as for Brazil, the majority of the Argentina harvest remains, with more accurate information yet to come on actual 2019 production.
  • 2019 Brazil Corn Production: The same dry conditions that have affected Brazil soybean production MAY eventually impact 2019 Brazil corn production. However, the 2nd crop planting of corn in Brazil began which began in mid-January will continue through mid-March, with harvest beginning in early May and lasting through the end of August.  Therefore, it is still “too early” to make accurate forecasts of how 2019 crop conditions may affect the 2nd crop corn harvest in Brazil.  The first crop of corn in Brazil is typically planted from mid-August through the end of December, with harvest occurring from January through May.  Common practice has been to allocate the 1st crop of corn in Brazil for domestic uses, with the second crop being used more in the export market. 
    • To date, the USDA projects there to be a recovery in Brazil 2019 corn production up to 94.0 mmt – the 2nd highest on record. This would be up 15% from a drought affected low of 82.0 mmt in 2018, but still down 4.6% from the record high of 98.5 mmt in 2017.  But the final 2019 corn production amount for Brazil is “yet to be determined”
    • Just as for soybeans, 2019 Brazil corn production will be counted in “current” MY 2018/19 marketing year ending on August 31, 2019. However, a large portion of the Brazilian corn exports from this crop will occur and count within the “next crop” 2019/20 marketing year beginning on September 1, 2019 and extending through the following August.
  • 2019 Argentina Corn Production: The same wet conditions that have affected 2019 Argentina soybean production MAY eventually impact that countries’ corn production.  Being further south, Argentina corn plantings occur in during September-December for its one annual crop, while the associated harvest typically follows in early March and lasts through the end of May.  
    • As in Brazil, it is still too early” to make accurate forecasts of how 2019 crop conditions may affect the 2nd crop corn harvest in Argentina. To date, projections from the USDA are that Argentina will have record 2019 corn production of 46.0 mmt – but that outcome is “yet to be determined”.    

 

4) CME Corn Futures & Kansas Cash Corn Prices & Basis Bids

4A – Corn Futures Price Trends

Since the release of the USDA’s February 8th World Agricultural Supply and Demand (WASDE) report, “lead contract MARCH 2019 CME corn futures prices initially moved lower, but have since partially recovered.   On February 8th, the day of the report, MAR 2019 corn opened at $3.76 ½ – trading as low as $3.74 and as high as $3.81 ¾ during the day before closing down $0.02 ¼ to $3.74 ¼ /bu.  Since that day, MAR 2019 corn has trended first lower down to $3.71 ¾ and then back up to $3.78 ¾ before closing at $3.78 ¼ on Wednesday, February 13th (Figure 1).   Considering long term trends in monthly, continuous Chicago Mercantile Exchange (CME) corn futures, recent lows of $3.18 ¼ (on 10/1/2014), $3.01 (on 8/31/2016), $3.38 (on 9/1/2017), and $3.36 ¼ per bushel (on 9/13/2018) have occurred.  These are comparable to the close of $3.78 ¼ in MARCH 2019 corn futures on February 13, 2019 (Figure 1).  

4B – Corn Futures Positions of Traders (CFTC Data)

Position of traders data released by the Commodity Futures Trading Commission (CFTC) is available from the CFTC at the following web address:  https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm .   The CFTC position of traders data on January 15th shows a “volatile” but at least temporarily “balanced” picture of corn futures trader sentiments, especially in regards to the offsetting quantities of “long” and “short” futures positions held by Management Money (Speculator or “Spec”) traders.

  • Net Positions of Commercial, Spec, & Index Traders: The net “long” or “buy” position of CME Corn futures speculative or “management money” traders was 78 million bushels (mb) on January 15, 2019 – following net “long” positions of 246 mb being held just one week earlier on January 8th (Figure 3a). The net short position of commercial hedgers on January 15th was 1.416 bb, down moderately from net short positions in the range of 1.497-1.855 bb during the December 4th – January 8th  The net position of index traders declined to 806 mb on January 15th, after having consistently been long during the 12/4/2018-1/8/2019 period, in the 909 mb-91 mb range. 
  • Commercial Hedgers Long & Short Positions: Both the “short / sell” and “long / buy” positions of CME Corn futures commercial hedgers have remained relatively consistent since early July 2018 (Figure 3b). Total commercial hedger “short / sell” positions have ranged from 3.727 bb to 4.024 bb during the 12/4/2018-1/8/2019 period, before declining to 3.638 bb in “short / sell” positions on 1/15/2019.  Typical risk management-related grain futures transactions and positions of commercial grain elevators and/or farmer hedgers would fall into this “short position” category.   Commercial hedger “long / buy” positions have ranged from 2.152 bb to 2.238 bb during the same period, with 2.222 bb in “long / buy” positions on 1/15/2019.  Typical risk management grain futures transactions and positions of commercial grain processors, ethanol plants, and livestock feeders would fall in this “long position” category.  
  • Managed Money (Specs) Long & Short Positions: The aggregate “short / sell” position of CME Corn futures management money (speculative) traders been increasing moderately since early December 2018 (Figure 3c).  Total speculator’s “short / sell” positions have ranged from 0.824 bb to 1.109 bb during the 12/4/2018 to 1/15/2019 period, with the largest amount of 1.109 bb in “short / sell” positions at the end of the period on 1/15/2019.   Speculator’s “long / buy” positions have also declined during this period, ranging from 1.187 bb to 1.446 bb during the same period, with the smallest amount of 1.187 bb in “long / buy” positions on 1/15/2019 at the end of the period.  

4C – Corn Cash Price & Basis Trends in Kansas

In Western Kansas on Wednesday, February 13th cash corn bids at major grain elevators ranged from $3.44 ($0.35 per bushel under MAR 2019 futures) to $3.81 ($0.02 basis over futures), and ranged from $3.35 ¾  ($0.43 under CME MAR 2019 corn) to $3.58 ¾ ($0.20 under) in Central Kansas.  These prices are much higher than when corn bids statewide had fallen to $2.66-$2.96 /bu on December 23, 2016. 

Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.798 ¾ /bu on February 13th, with basis bids being $0.00 level with MAR 2019 corn futures.  These eastern Kansas cash corn prices are up from the range of $3.26-$3.28 per bushel on 12/23/2016.  Cash corn bids at Kansas ethanol plants on Wednesday, December 13th ranged from $3.77 ¼ /bu ($0.01 under MAR) to $3.98 ¼ ($0.20 over MAR 2019) – continuing to indicate strength in ethanol demand for corn in Kansas and nationwide. 

 

5) USDA & KSU S-D & Price Forecasts for “Current” MY 2018/19

The USDA’s projection and three alternative KSU-Scenarios to the USDA’s forecast for U.S. corn supply-demand and prices are presented in what follows for “current” MY 2018/19 (Tables 1-1a & Figures 12-12a).  These projections show how varying 2018 U.S. corn production and export / total use scenarios could affect U.S. corn supply-demand and price outcomes yet in “current” MY 2018/19.  Probability-weights are added to reflect judgements about how likely each scenario is to occur in “current” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.

Scenario AMY 2018/19USDA WASDE Corn S-D Scenario for “Current” MY 2018/19: (75% prob.): Assumptions: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.465 bb food, seed & industrial use; 2.450 bb exports; 5.375 bb feed & residual use; 14.865 bb total use; 1.735 bb ending stocks; 11.67% Stocks/Use; & $3.60 /bu U.S. corn average price

Scenario BKSU “Lower U.S. Corn Exports” Scenario for “Current” MY 2018/19 (10% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.451 bb food, seed & industrial use; 2.350 bb exports (down 100 mb vs USDA’s 2.450 bb); 5.375 bb feed & residual use; 14.765 bb total use (down 100 mb vs USDA’s 15.030 bb); 1.835 bb ending stocks (up 100 mb vs USDA’s 1.735 bb); 12.43% Stocks/Use (up vs USDA’s 11.67% S/U); & $3.40 /bu U.S. corn average price (down vs USDA’s $3.60 per bushel);   

Scenario CKSU “Higher U.S. Corn Exports” Scenario for “Current” MY 2018/19 (10% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.465 bb food & industrial use; 2.550 bb exports (up 100 mb vs USDA’s 2.450 bb); 5.375 bb feed & residual use; 14.965 bb total use (up 100 mb vs USDA’s 14.865 bb); 1.635 bb ending stocks (down 100 mb vs USDA’s 1.735 bb); 10.93% Stocks/Use (down vs USDA’s 11.67% S/U); & $3.75 /bu U.S. corn average price (up vs USDA’s $3.60 per bushel).   

Scenario DKSU “Higher Ethanol Use of U.S. Corn” Scenario for “Current” MY 2018/19 (5% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.675 bb ethanol use (up 100 mb vs USDA’s 5.575 bb); 1.450 bb food & industrial use; 2.450 bb exports; 5.500 bb feed & residual use; 14.965 bb total use (up 100 mb vs USDA’s 5.575 bb); 1.635 bb ending stocks (down 100 mb vs USDA’s 1.735 bb); 10.93% Stocks/Use (down vs USDA’s 11.67% S/U); & $3.75 /bu U.S. corn average price (up vs USDA’s $3.60 per bushel).   

 

6) USDA Preliminary Market Forecast for “Next Crop” MY 2019/20

An adjusted version of USDA’s projection for U.S. corn supply-demand and prices for “next crop” MY 2019/20 (Table 1a).  These projections show the USDA’s projections for U.S. corn in the “next” marketing year, based on the U.S. corn harvest in year 2019, with the marketing year beginning on September 1, 2019 and lasting through August 31, 2020.  Liberty has been taken to make minor adjustments to the USDA’s projections following from the results of the December 11, 2018 USDA WASDE report.

Scenario AUSDA December 11th WASDE Corn S-D Scenario for “Next Crop” MY 2019/19: (75% prob.): Assumptions are: 92.000 ma planted (up 2.860 ma vs MY 2018/19), 84.600 ma harvested (up 2.833 ma vs MY 2018/19), 176.5 bu/ac yield (up 0.1 bu/ac vs MY 2018/19), 14.930 bb production (up 510 mb vs MY 2018/19), 16.715 bb total supplies (up 115 mb vs MY 2018/19), 5.700 bb ethanol use (up 125 mb vs MY 2018/19), 1.459 bb food & industrial use (up 25 mb vs MY 2018/19), 2.425 bb exports (down 25 mb vs MY 2018/19), 5.575 bb feed & residual use (up 200 mb vs MY 2018/19), 15.190 bb total use (up 325 mb vs MY 2018/19), 1.529 bb ending stocks (down 206 mb vs MY 2018/19), 10.07% Stocks/Use (down vs 11.67% S/U in MY 2018/19), & $3.90USDA /bu U.S. corn average price (up $0.30 /bu vs MY 2018/19); 

 

7) World Corn Supply-Demand – Both With & Without China

World Production:  World corn production of 1,099.61 million metric tons (mmt) is projected for “current” MY 2018/19, up 2.2% from 1,075.61 mmt in “old crop” MY 2017/18, but down 2.0% from the record high of 1,122.41 mmt in MY 2016/17 (Figures 14).  The “current” 2018/19 marketing year began September 1, 2018 and continues through August 31, 2019. 

Forecast corn production in Argentina of 46.00 mmt in 2019 would be a “rebound” from the short crop of 32.00 mmt projected in 2018, and above 41.00 mmt produced in 2017.  Similarly, production in Brazil of 94.50 mmt in 2019 would also be a “rebound” from the short crop of 82.00 mmt projected in 2018, but down from 98.50 mmt in 2017.  A large portion of the corn harvests for Argentina and Brazil occur in the later half of September 1st – August 31st marketing years, i.e., February through August.  For “current” MY 2018/19, the Argentina and Brazil corn harvests will be during February-August, 2019.

World Total Supplies:  World corn total supplies of a record high 1,440.42 mmt in “current” MY 2018/19 are forecast to be up 1.0% from 1,425.85 mmt in “old crop” MY 2017/18, and up 0.5% from the previous record high of 1,433.79 mmt in MY 2016/17.   The estimates of World corn total supplies were adjusted approximately 14% higher in the November 8th WASDE report to changes in Chinese domestic corn supply-demand balance sheets – with these adjustments carrying through to the December 11th and February 8, 2019 reports.

World Exports: World corn exports of a record high 167.36 mmt are projected for “current” MY 2018/19, up 14.4% from 146.29 mmt in “old crop” MY 2017/18, and up 4.6% from the previous record high of 160.05 mmt in MY 2016/17 (Figure 14).

World Ending Stocks (% Stocks/Use):  Projected World corn ending stocks of 309.78 mmt (27.40% S/U) in “current” MY 2018/19 are down from 340.81 mmt (31.41% S/U) in “old crop” MY 2017/18, down from the record high 350.24 mmt (32.32% S/U) in MY 2016/17, and 311.38 mmt (31.12% S/U) in MY 2015/16 (Figures 14 & 15a).    Projected Foreign (Non-U.S.) corn ending stocks of 265.70 mmt (28.87% S/U) in “current” MY 2018/19, are down from 286.44 mmt (33.48% S/U) in “old crop” MY 2017/18, and is down from 291.99 mmt (33.50% S/U) in MY 2016/17. 

Just as for total supplies, changes in Chinese corn ending stocks increased World corn ending stocks estimates by 93.0% in the November 2018 USDA WASDE report, and increased World ending stocks-to-use estimates from 14.39% in October 2018 up to 27.16% and 27.30% in the November 8th and December 11th WASDE reports, respectively, and to 27.40% in the February 8, 2019 WASDE.

World-Less-China Ending Stocks (% Stocks/Use): An alternative view of the World corn supply-demand is presented IF Chinese corn usage and ending stocks are isolated from the World market (Figures 15b-c).  “World-Less-China” corn ending stocks are projected to be 101.97 mmt (11.95% S/U) in “current” MY 2018/19, down from 118.24 mmt (14.39% S/U) in “old crop” MY 2017/18, and down from 127.23 mmt (15.82% S/U) in MY 2016/17.  These figures show that World % stocks-to-use of corn less China’s direct influence are projected to be 56.4% lower or “tighter” (i.e., 11.95% S/U for the “World-Less-China” versus 27.40% S/U for the “World” overall in “current” MY 2018/19). 

World versus China Corn Ending Stocks: After the changes in World corn supply-demand reported in the November 8th WASDE report, which were carried forward into the December 11th and February 8, 2019 reports, the USDA showed that estimates of Chinese ending stocks of corn as proportion of the World total have increased significantly from the October 2018 WASDE report.   The updated figures show the percent of World corn stocks held by China to be 61.91% in MY 2014/15, 68.09% in MY 2015/16, 63.67% in MY 2016/17, 65.29% in “old crop” MY 2017/18, and now are projected to be 67.08% in “current” MY 2018/19. 

While China’s percent of World corn stocks is estimated to have increased with these new USDA figures,  “World-Less-China” percent corn ending stocks-to-use are estimated to be 11.95% in “current” MY 2018/19, the lowest percentage in 6 years (Figures 15a-b)“World-Less-China” corn stocks-to-use was 9.5%-9.9% during the years of MY 2011/12 – MY 2012/13, but increased to the range of 12.2% to 13.8% during the MY 2013/14 through MY 2015/16 period.  Then after a high of 15.82% in MY 2016/17, “World-Less-China” corn ending stocks-to-use declined to 14.39% in “old crop” MY 2017/18, and to a projected level of 11.95% in “current” MY 2018/19.   This decline supports the idea that corn stocks outside of China are “tightening up” – and that the overall World corn market has an increasing possibility of seeing higher prices in the future if these trends continue.

 

7) Final Thoughts re: Corn Market Focus in “Current” MY 2018/19

From mid-February 2019 through May 2019, the “narrative focus” of the corn market will likely be on corn the later part of the planting season in southern areas and early season development in Argentina and Brazil.   It is possible if not likely that news about the pace of usage of U.S. domestic corn and other feedgrains and the possibility of excessive moisture delaying U.S. corn planting progress will also have the attention of the U.S. corn markets during February-May 2019. 

The impact of this news will be exacerbated IF U.S. corn exports are spurred higher 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 progress.  The corn market would 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 “current” MY 2018/19, U.S. producers will be making marketing decisions under conditions of “uncertainty” as what may be profitable seasonal pricing opportunities present themselves.  For those with a “risk averse” perspective on corn price risk management, there will likely 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 at harvest during fall 2019.  This early action” approach contrasts to those corn producers who are less worried (i.e., “less risk averse”) about being in what is essentially a “speculative post-harvest storage” position in the corn market – i.e., holding unpriced corn in storage longer while waiting for the possibility of a better price that may come later.   

The key point to consider is that the likelihood exists of there being greater price strength in U.S. corn markets through the Winter and Spring 2019 months than many may now be taking into account.  Any such optimism in the U.S. corn market depends on the likelihood of 1) crop production problems for South American corn in 2019, b) the strong domestic demand base that seems to exist for the U.S. corn crop in “current” MY 2018/19, and c) the growing possibility of delayed planting for U.S. corn – particularly in the central, northern, and eastern parts of the U.S. Corn Belt.