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:
Following is a summary of the article on “U.S. Corn Market Outlook on June 24, 2019”
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
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)
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.
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.
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.
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.
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).
World Corn Supply-Demand – Both W. & Without China
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 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 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.