An analysis of U.S. and World Corn supply-demand factors and “New Crop” 2018/19 Marketing Year supply-demand and price prospects is provided in the following article summary. This information follows the USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports on May 10, 2018.
A full version of this article will available on the KSU AgManager website http://www.agmanager.info/ at the following web address:
Following is the article with supporting Tables and Charts for “Corn Market Outlook in Late-May 2018″
Overview of the Corn Market Situation in Late-May 2018
Since early February 2018 the outlook for U.S. corn market prices through Summer-Fall of this year has improved significantly. Increasingly optimistic forecasts for U.S. corn prices in the “new crop” 2018/19 marketing year are based on a combination of 1) expected reductions in 2018 U.S. corn planted acres and production, 2) forecasts of continued strength in U.S. corn usage, and 3) prospects for tighter supplies in terms of reduced ending stocks and percent ending stocks-to-use. Improved U.S. corn export prospects are expected as a result of 2018 corn production problems for export competitors Argentina and Brazil. Strong U.S. ethanol demand is also expected to continue due to growing U.S. gasoline demand in a robust economy.
Even with the strength of U.S. corn prices over the past four (4) months, the path of U.S. corn prices through Fall 2018 will be largely driven by the development of and prospects for the 2018 U.S. corn crop. Kansas State University projections are that if prospects for 2018 U.S. corn production decline markedly below the 14.040 billion bushel (bb) forecast by the USDA – down to say 13.50-13.75 bb or less, then U.S. corn ending stocks would likely fall to 1.450-1.575 bb or less (compared to the USDA’s forecast of 1.682 bb). If this occurs, then U.S. corn ending stocks-to-use in “new crop” MY 2018/19 would likely decline to 10% or less – compared to the current USDA forecast of 11.53% ending stocks-to-use.
If these circumstances were to occur, then in Fall 2018 DEC 2018 corn futures would likely move higher to the range of $4.50-$5.00 /bu. or more. Projected U.S. average cash prices for “new crop” MY 2018/19 would also likely rise – up to the range of $4.00-$4.50 /bu (midpoint = $4.25). This compares to the current USDA forecast of $3.30-$4.30 (midpoint = $3.80 /bu) on 11.53% stocks/use for “new crop” MY 2018/19 – beginning September 1, 2018.
CME Corn Futures & Kansas Cash Corn Prices & Basis Bids
Since the release of the USDA’s May 10th World Agricultural Supply and Demand (WASDE) report, “old crop” JULY 2018 CME corn futures prices have traded in a range of $3.94 ¼ to $4.09 per bushel before closing at $4.08 ½ /bu on May 23rd (Figure 1). Over the same time period “new crop” DECEMBER 2018 CME corn futures prices have traded in a range of $4.12 ¼ to $4.26 ¾ /bu before closing at $4.26 ½ on May 23rd. Prices for both of these contracts are up $0.45 ¾ /bu or 12.8% from their lows on January 12th following the January 2018 USDA Annual Crop Production Summary, WASDE, and Grain Stocks reports, and the USDA Prospective Plantings and Grain Stocks reports on March 29th.
In Western Kansas on Wednesday, May 23rd cash corn bids at major grain elevators ranged from $3.54 ($0.55 under JULY 2018 futures) to $3.98 ($0.11 under), and ranged from $3.68 ½ ($0.40 under) to $3.913 ½ ($0.17 under) in Central Kansas. These prices are much higher than when bids statewide had fallen to $2.66-$2.96 on December 23, 2016, and 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 $3.98 ½ – $4.03 ½ on May 23rd, up substantially from the range of $3.26-$3.28 per bushel on 12/23/2016. Cash corn bids at Kansas ethanol plants on May 23rd ranged from $3.91 ¾ ($0.13 under JULY) to $4.39 ¾ ($0.35 over JULY) – continuing to indicate strength in ethanol demand for corn in Kansas and nationwide.
USDA U.S. Corn Supply-Demand Projections for “Old Crop” MY 2017/18
In the May 10th USDA WASDE report the USDA projected “old crop” MY 2017/18 corn Total Supplies to be unchanged from earlier WASDE reports at 16.947 bb (Table 1 and Figure 6). Total Use was projected to be the highest on record at 14.765 bb – up from the past record of 14.649 bb a year earlier (Table 1, Figures 7 & 9).
Continued strength in U.S. gasoline demand resulting from a healthy U.S. economy has supported U.S. ethanol demand – and spurred corn use in ethanol production (Figure 8a). In spite of a build-up in U.S. ethanol stocks and a moderation in ethanol prices, production has remained at or near record high levels (Figure 8b). Exports of U.S. ethanol increased sharply in March 2018 to 14.3% of U.S. ethanol production – up from that previous high of 13.2% in December 2011 (Figure 8c). Most U.S. ethanol exports in 2017 went to Brazil and Canada, and this trend continues in 2018.
Exports of U.S. corn have increased in volume since early 2018 as the damage to corn crops in export competitors Argentina and Brazil has emerged (Figure 10). Through May 17th – the 37th week of “old crop” MY 2017/18 – 1.404 bb of U.S. corn had been shipped. This amounts to 63.1% of the USDA’s projection of 2.225 bb in U.S. exports with 71.2% of the marketing year complete (i.e., 37/52 weeks). However, total shipments and forward sales of U.S. corn in “old crop” MY 2017/18 through May 17th amounted to 2.105 bb, or 94.6% of the USDA’s projection with 71.2% of MY 2017/18 complete – indicating a positive outlook for “old crop” U.S. corn exports for the remainder of the marketing year through August 31st.
Non-ethanol Food, Seed, and Industrial (FSI) usage has continued to grow to a record high 1.465 bb in “old crop” MY 2017/18. Feed and Residual use of U.S. corn in “old crop” MY 2017/18 increased to a 10 year high of 5.500 bb – following strong feed demand from year-over-year increases from year 2017 to 2018 in U.S. total red meat and poultry production (Figures 7 & 9). Production and use of Distillers Dried Grains and Solubles (DDGS) have been robust, with DDGS use for livestock feed and exports remaining strong (Figure 9).
As a result of these supply and use projections for “old crop” MY 2017/18, ending stocks are projected to be 2.182 bb with percent ending stocks-to-use of 14.78% – down from 2.293 bb (15.65% S/U) in MY 2016/17 (Table 1, Figures 11-12). United States’ corn prices for “old crop” MY 2017/18 are projected in the range of $3.25-$3.55 (midpoint = $3.40 /bu).
USDA Supply-Demand Projections for “New Crop” MY 2018/19
The USDA provided a forecast of U.S. corn supply, demand, and prices for “new crop” MY 2018/19 In the May 10th USDA WASDE report. Based on 2018 U.S. corn production projections 88.026 million acres (ma) planted, 80.690 ma harvested, and 2018 U.S. corn average yields of 174.0 bu/ac., the USDA forecast 2018 U.S. corn production to be 14.040 bb – down from 14.604 bb in 2017 (2nd highest on record), and the record high of 15.148 bb in 2018 (Tables 1a-b, Figures 4-5).
Total Supplies of U.S. corn in “new crop” MY 2018/19 are forecast to be 16.272 bb based on 2.182 bb in beginning stocks, 14.040 bb in production, and 50 mb in imports. This is down from record highs of 16.942-16.947 bb in U.S. corn Total Supplies the last two marketing years (Tables 1a-b, Figure 6).
Corn-based ethanol production in the U.S. in “new crop” MY 2018/19 is forecast to be a new record high of 5.625 bb – to be driven by expected ongoing growth in U.S. gasoline demand (Table 1a-b, Figures 7-9). This would be up 50 mb in U.S. corn use for ethanol than in “old crop” MY 2017/18.
Exports of U.S. corn in “new crop” MY 2018/19 are forecast to decline 125 mb to 2.100 bb – likely on a return to normal corn production on the part of export competitors Argentina and Brazil in 2019 (Figures 7-9). As of May 17th, a total of 98.6 mb of U.S. corn sales have been made for delivery in “new crop” MY 2018/19 – beginning on September 1, 2018 – equal to 4.7% of the USDA projection of 2.100 bb for the marketing year.
Non-ethanol Food, Seed, and Industrial (FSI) usage is forecast to be up 35 mb to a record high 1.490 bb in “new crop” MY 2018/19. Feed and Residual use of U.S. corn in “new crop” MY 2018/19 is forecast to be 5.375 bb – down from the 10 year high of 5.500 bb in “old crop” MY 2017/19 – following the impact of higher corn prices on livestock feed usage (Figures 7 and 9). The USDA made a partially offsetting increase in its projections of increased wheat feeding (up 50 mb) to offset this reduction. Increased availability of Distillers Dried Grains and Solubles (DDGS) from increased ethanol production will also help offset this forecast direct reduction in corn use for livestock feeding (Figure 9).
Total Use is projected to be the 3rd highest on record at 14.590 bb – down from the record highs of 14.649-14.765 bb the last two years (Table 1 and Figures 7 & 9).
As a result of these supply and use projections for “new crop” MY 2018/19, ending stocks are projected to be 1.682 bb with percent ending stocks-to-use of 11.53% – down from 2.182 bb (14.78% S/U) in “old crop” MY 2017/18 (Tables 1a-b and Figures 11-12). United States’ corn prices for “new crop” MY 2018/19 are projected in the range of $3.30-$4.30 (midpoint = $3.80 /bu) – up $0.40 /bu from the midpoint projection of $3.40 /bu in “old crop” MY 2017/18. This scenario is given a 45% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.
Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2018/19
Three alternative KSU-Scenarios to the USDA’s forecast for U.S. corn supply-demand and prices are presented in what follows for “new crop” MY 2018/19 (Table 1b). These projections show how varying 2018 U.S. corn production and use scenarios could affect U.S. corn supply-demand and price outcomes in “new crop” MY 2018/19. Probability-weights are added to reflect judgements about how likely each scenario is to occur in “new crop” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.
A – KSU “Higher 2018 U.S. Corn Production” Scenario for “new crop” MY 2018/19: (25% probability): Assumptions are as follows: 88.026 ma planted, 80.690 ma harvested, 176.6 bu/ac record yield (equal to 2017 record high), 14.277 bb production, 16.509 bb total supplies, 14.645 bb total use, 1.845 bb ending stocks, 12.73% S/U, & $3.60 /bu U.S. corn average price;
B – KSU “Lower 2018 U.S. Corn Production” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions are as follows: 88.026 ma planted, 80.846 ma harvested, 164.4 bu/ac yield (equal to 2009 yield), 13.291 bb production, 15.523 bb total supplies, 14.204 bb total use, 1.319 bb ending stocks, 9.23% S/U, & $4.50 /bu U.S. corn average price.
C – KSU “Higher 2018 U.S. Corn Exports” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions are as follows: 88.026 ma planted, 80.846 ma harvested, 174.0 bu/ac yield (equal to USDA forecast yield), 14.040 bb production, 16.272 bb total supplies, 2.400 bb exports (up 300 mb from USDA), 14.590 bb total use, 1.208 bb ending stocks, 8.44% S/U, & $5.25 /bu U.S. corn average price.
World Corn Supply-Demand – With & Without China
World corn production of 1,056.1 million metric tons (mmt) is projected for “new crop” MY 2018/19, up 1.9% from 1,036.7 mmt in “old crop” MY 2017/18, but down 2.1% from the record high of 1,078.3 mmt in MY 2016/17 (Figures 13-14a, Table 2). The “new crop” 2018/19 marketing year begins September 1, 2018 and continues through August 31, 2019. Production in Argentina of 41.0 mmt in 2019 would be a “rebound” from the short crop of 33.0 mmt projected in 2018. Similarly, production in Brazil of 96.0 mmt in 2019 would also be a “rebound” from the short crop of 87.0 mmt projected in 2018. The 2018 corn harvests for Argentina and Brazil occur in the later half of “old crop” MY 2017/18, i.e., February through August 2018.
World corn total supplies of 1,250.9 mmt in “new crop” MY 2018/19 are forecast to be down moderately from 1,264.2 mmt in “old crop” MY 2017/18, but up from the record high of 1,288.3 mmt in MY 2016/17.
World corn exports of a 158.0 mmt are projected for “new crop” MY 2018/19, up 4.6% from 151.1 mmt in “old crop” MY 2017/18, but down 1% from the record high of 159.7 mmt in MY 2016/17 (Table 3).
Projected World corn ending stocks of 159.2 mmt (14.6% S/U) in “new crop” MY 2018/19 are down 18.3% from 194.85 mmt (18.2% S/U) in “old crop” MY 2017/18, 30.1% from the record high 227.5 mmt (21.4% S/U) in MY 2016/17, and 210.0 mmt (21.2% S/U) in MY 2015/16 (Figure 13-14a, Tables 8-9). Projected Foreign (Non-U.S.) corn ending stocks of 116.4 mmt (13.2% S/U) in “new crop” MY 2018/19, is down 16.5% from 139.4 mmt (16.5% S/U) in “old crop” MY 2017/18, and is down from 169.3 mmt (20.0% S/U) in MY 2016/17.
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 14b-c, Tables 7-9). “World-Less-China” corn ending stocks are projected to be 98.65 mmt (11.7% S/U) in “new crop” MY 2018/19, down from 115.3 mmt (13.9% S/U) in “old crop” MY 2017/18, and down from 126.8 mmt (15.3% 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 approximately 20% lower (i.e., 11.7% S/U for the “World-Less-China” versus 14.6% S/U for the “World” overall in “new crop” MY 2018/19).
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 MY 2016/17, to 40.8% in “old crop” MY 2017/18, and now projected to be 38.0% in “new crop” MY 2018/19 (Tables 2-9). 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 eventually increase Chinese import demand for U.S. feedgrains if and when China has a severe short crop situation that they are not able to anticipate ahead of time.