An analysis of U.S. and World Corn supply-demand & price prospects for the “New Crop” 2017/18 and “Next Crop” 2018/19 Marketing Years are provided in the following article summary. This information follows the USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports on December 12, 2017.
A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:
Following is a summary of the article on “Corn Market Outlook in December 2017″
A. Corn Market Overview
Since the USDA’s December 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, MARCH 2018 CME corn futures prices have traded higher and lower in a mixed manner. Longer term – MARCH 2018 Corn futures have been trending lower – closing at $3.49 ¼ on December 20th. In its’ December 12th USDA Crop Production report, the USDA maintained its projection from November of 2017 U.S. corn yields to average a record high 175.4 bu/ac, with 2017 U.S. corn production at 14.578 billion bushels (bb) – both up substantially from trade expectations during the summer of 2017.
Since both the November 9th and December 12th USDA reports, market expectations have reinforced a consensus consistent with the USDA projection of a “large supply – low price” scenario, leaving DEC 2017 corn futures (now expired) to trade in the range of $3.35 ¼ – $3.47 per bushel during the November 10th through December 14th late- harvest period. The USDA will provide updated 2017 U.S. corn production numbers in its upcoming January 12, 2018 USDA Crop Production report.
It continues to be true that any significant corn futures or cash market price rallies through winter 2017-2018 on into early Spring 2018 are likely to be limited by ending stocks of U.S. corn in the 2.350-2.500 billion bushels (bb) range, coupled with ending stocks-to-use of 16.0%-17.5% for the 2017/18 marketing year. However, in Spring-early Summer 2018 the U.S. corn market is likely again to have to weigh the annual risk of weather-limiting 2018 U.S. corn production prospects (i.e., the possibility of 2018 U.S. corn production less than 13.500 bb??) and tighter ending stocks (less than 1.500 bb??) in “next crop” MY 2018/19. And that risk again is likely to provide both old crop and new crop pricing opportunities in Spring-Summer 2018.
One positive long-term factor in the U.S. corn market is the considerable “tightening up” that is forecast for foreign (non-U.S.) corn supply-demand balances in the “new crop” 2017/18 marketing year. If this occurs, it would lead to larger U.S. corn export shipments in early 2018 than are currently happening, and support higher U.S. corn prices in Spring-Summer 2018 than are represented by 2018 Corn futures contracts.
B. Kansas Cash Corn Prices & Basis Bids
In Western Kansas on Wednesday, December 20th cash corn bids at major grain elevators ranged from $2.96 ($0.53 under MARCH futures) to $3.37 ($0.12 under), and ranged from $3.01 ½ ($0.48 under) to $3.24 ¼ ($0.25 under) in Central Kansas. Even though Kansas corn prices have remained low in recent weeks, these prices still are still mostly higher than a year ago when bids statewide had fallen to $2.66-$2.96 on December 23, 2016. These prices were still above marketing loan rates for corn across the state, with corn loans near $2.05 in Central Kansas and $2.19 per bushel in Western Kansas.
Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.24 ¼ – $3.31 ¼ on December 20th, nearly equal to the range of $3.26-$3.28 per bushel on 12/23/2016. Cash corn bids at Kansas ethanol plants on December 20th ranged from $3.27 ½ ($0.20 under MARCH) to $3.74 ½ ($0.27 over MARCH) – indicating continuing strength in ethanol demand for corn in Kansas and nationwide.
C. Major Corn Market Considerations for Winter-Spring 2018
First, the corn market is likely to be only moderately responsive to any early season 2018 U.S. corn production threats since beginning stocks for “new crop” MY 2017/18 have been projected to be near 2.295 bb rather than down to 1.250-1.500 bb. If no significant production risk emerges in summer 2018, then these large “old crop” MY 2017/18 carryover supplies will continue to limit 2018 corn crop forward pricing prospects.
Second, low prices for U.S. corn will help maintain strong usage for domestic U.S. ethanol and wet milling production, as well as livestock feeding through at least spring 2018 if not into the summer months.
Third, the USDA is projecting at least “moderate” continued strength in U.S. corn exports of 1.925 bb for “new crop” MY 2017/18. United States’ corn export shipments have been “slow” to date in the current marketing year. However, the USDA maintains its optimism for “new crop” MY 2017/18 U.S. corn exports because of a) low U.S. corn prices, b) expectations of significantly tighter foreign stocks and percent (%) stocks-to-use for corn, and c) the eventual “using up” of competing South American corn exports in early 2018.
Early forecasts are for 2018 Brazilian corn production to be 95 million metric tons (mmt) in this marketing year with harvests lasting from February through May. Early forecasts are for 2018 Argentina corn production to be 42 mmt in this marketing year with harvests lasting from March through May. However, dry conditions may limit 2018 corn production in Argentina and southern Brazil – and subsequently support U.S. corn exports.
Fourth, a continuing threat exists of U.S. and Foreign economic and/or financial system disruptions that could impact grain, energy, and other commodity markets in 2018. World geo-political events could provide “shocks” to U.S. and World energy and grain markets which could in turn impact grain prices in either direction depending on the circumstances, the countries involved, and their role in global corn export trade.
D. USDA Supply-Demand & Price Forecast for “New Crop” MY 2017/18
In the December 12th Crop Production reports, the USDA left unchanged its projections of a) projected yields up to a record high of 175.4 bu/ac (vs the previous record of 174.6 in 2016), and b) 2017 U.S. corn production up to 14.578 bb – down from the record high of 15.148 bb in 2016. The also USDA left unchanged its forecast “new crop” MY 2017/18 total supplies to 16.922 bb – down marginally (20 mb) from last year’s record high. Total use is forecast at 14.485 bb – raised 50 mb from November on higher ethanol use, but still down 162 mb from last year’s record high. Ending stocks are projected to be a 2.437 bb (16.8% S/U) – up from 2.295 bb (15.7% S/U) in “old crop” MY 2016/17. United States’ corn prices are projected to average $3.20 /bu (range of $2.85-$3.55). This is down $0.16 /bu from $3.36 /bu from “old crop” MY 2016/17. This scenario is given an 80% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.
E. Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2017/18
Two alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “new crop” MY 2017/18. These projections are to show how varying corn export outcomes could affect the USDA’s projection in the December 9, 2017 WASDE report.
#1 – KSU “Higher Exports” MY 2017/18 Scenario: “2.250 bb Exports” Scenario (10% probability) assumes: 90.348 ma planted, 82.890 ma harvested, 175.4 bu/ac trend yield, 14.539 bb production, 16.884 bb total supplies, 2.250 bb exports, 14.785 bb total use, 2.099 bb ending stocks, 14.20% S/U, & $3.55 /bu U.S. corn average price;
#2 – KSU “Lower Exports” MY 2017/18 Scenario: “1.800 bb Exports” Scenario (10% probability) assumes: 90.348 ma planted, 82.890 ma harvested, 175.4 bu/ac trend yield, 14.539 bb production, 16.884 bb total supplies, 1.800 bb exports, 14.360 bb total use, 2.524 bb ending stocks, 17.58% S/U, & $3.20 /bu U.S. corn average price;
F. USDA Supply-Demand & Price Forecast for “Next Crop” MY 2018/19
In the November 28th Long Term Baseline projections, the USDA forecast for “next crop” MY 2018/19 that 2018 U.S. corn planted and harvested acres would equal 91.0 million acres (ma) and 83.7 ma, respectively, both up from 90.429 ma planted and 83.119 ma harvested in 2017. Corn yields in 2018 are forecast at 173.5 bu/ac, down from the record high of 175.4 bu/ac in 2017. U.S. corn production is 2018 is projected to be 14.520 bb – down from 14.578 bb now projected for 2017.
The USDA forecast “new crop” MY 2017/18 total supplies to 17.007 bb – adjusted for changes in the December WASDE report in MY 2017/18 ending stocks. Total use is forecast at 14.450 bb – down 35 mb from this current marketing year. Ending stocks are projected to be a 2.557 bb (17.7% S/U) – up from 2.437 bb (16.8% S/U) in “new crop” MY 2017/18. United States’ corn prices are projected to average $3.30 /bu – up from $3.20 /bu in “new crop” MY 2017/18.
G. World Corn Supply-Demand – With & Without China
World corn production of 1,044.8 million metric tons (mmt) is projected for “new crop” MY 2017/18, down 2.9% from the record of 1,074.8 mmt in “old crop” MY 2016/17, but still up 7.3% from 973.5 mmt in MY 2015/16. World corn total supplies of 1,272.1 mmt are down marginally from the record high 1,290.5 mmt in “old crop” MY 2016/17, but up from 1,183.2 mmt in MY 2015/16.
World corn exports of a 151.6 mmt are projected for “new crop” MY 2017/18, down 7.6% from the record high of 164.1 mmt in “old crop” MY 2016/17, and up 26.7% from 119.7 mmt in MY 2015/16. Projected World corn ending stocks of 204.1 mmt (19.1% S/U) in “new crop” MY 2017/18 are down from the record high 227.3 mmt (21.4% S/U) in “old crop” MY 2016/17, and from 214.9 mmt (22.2% S/U) in MY 2015/16. Projected Foreign (Non-U.S.) corn ending stocks of 142.2 mmt (16.5% S/U) in “new crop” MY 2017/18 are down from 169.0 mmt (19.8% S/U) in “old crop” MY 2016/17, and from 170.8 mmt (23.1% S/U) in MY 2015/16.
An alternative view of the World corn supply-demand is presented if Chinese corn usage and ending stocks are isolated from the World market. “World-Less-China” corn ending stocks are projected to be 124.5 mmt (15.0% S/U) in “new crop” MY 2017/18, down from 126.6 mmt (15.2% S/U) in “old crop” MY 2016/17, but up from 104.1 mmt (13.9% S/U) in MY 2015/16. These figures show that World stocks-to-use of corn less China’s direct influence are projected to be approximately 21% lower (i.e., 15.0% S/U for the “World-Less-China” versus 19.1% S/U for the “World” overall in “new crop” MY 2017/18).
At the same time, these figures also show that Chinese ending stocks of corn as proportion of the World total are declining – down from 51.5% in MY 2015/16, to 44.3% in “old crop” MY 2016/17, and down to 39.0% in “new crop” MY 2017/18. The deliberate actions in recent years – taken by the Chinese government to reduce feedgrain stockpiles – is impacting the relative amount of World total corn stocks they hold. These actions may increase Chinese import demand for both U.S. corn and grain sorghum.