Still trying to figure out how much corn to plant next year? You’re not alone. We take a look at the latest USDA’s November and December supply and demand estimates in an effort to help growers crack the corn market’s code.
Anna-Lisa Laca, Farm Journal’s Online and Business editor wrote an article for AgWeb titled, “2019 Outlook: Corn Markets Hinge on Acreage Battle.” In the piece, she argues that next season depends on the corn balance sheet, and cites the November World Agriculture Supply and Demand Estimates (WASDE) from the USDA.
Global carryout for corn in 2018/2019 will total 334.18 million metric tons (mmt). This was a big jump from the USDA’s October estimate of 185.93 mmt. A surprise census survey emerged from China showing that over the past few years, the country had produced 20-30 mmt more corn than the USDA had previously estimated. China doesn’t publish their grain stocks, so analysts use surveys to try and determine Chinese supply.
Kent Beadle, the director of risk consulting services for CHS says,
“Essentially, what we did is we added the very large number to the world balance sheet, almost doubling world corn ending stocks from what we believed it to be just last month.”
“Throughout the whole summer, we’ve had a very, very tight world stocks to use and now that’s going to look a lot different.”
It’s important to remember though, that China’s not really exporting any corn.
“It’s been very long time since the Chinese were actually active in the export market,” Beadle says. “It’s in China, and it’s locked in China, and all we have to verify is that this is what they say they have.”
If you leave the Chinese supply out of the calculations, global carryout is very tight.
According to DTNPF, the numbers for December global corn carryout remain the same as November. The USDA released the December World Agriculture Supply and Demand Estimates on the 11th.
Is a Crop Shift Ahead?
Due to the trade disagreement with China, many producers are considering switching some soybeans over to corn next season. Naomi Blohm of Stewart-Peterson says,
“Currently, the U.S. market is assuming that there will be a substantial increase in U.S. planted corn acres for 2019, which is why the corn price continues to be stuck in a narrow trading range,” she explains. “The potential for more corn acres means more supply which would alleviate the tight global carryout.”
If the corn market goes too high, more farmers will grow corn. Supplies will increase, and prices won’t go up. For an example of this, we can look back to 2007. More farmers planted corn in response to ethanol demand. 14 million more acres of corn were planted from the previous year.
The shift might not be as big as 2007’s, but we should expect big growth in corn acres. Growers don’t want to plant soybeans because of the lost Chinese markets, but also because soybean acres have grown a lot recently, and we’re due for a change in rotation.
Mike North of Commodity Risk Management Group says,
“Can I justify $8.50 or less for soybeans when I have a $4 futures price out there for corn, which I might be able to still swing a basis of 30 cents on?”
“Corn is going to be very torn as we go through the winter, especially to find that proper point of balance in price, to attract just enough acres, but not too many,” he says.
It’s difficult to predict what will happen. On the flip side, the University of Missouri Food and Agricultural Policy Research Institute isn’t expecting big swings in corn acreage or prices. They’ve anticipated planted corn acreage to increase from 89.1 million to 91.1 million, and prices to increase 21 cents per bushel to $3.83.
Corn Price Drivers to Watch
Two things might have the ability to steer corn prices and it’s going to be important to keep and eye on them: South America, and E-15. So we know world corn demand is growing. The market needs South American production to rebound. If they do, the market might go lower. If they don’t, prices may go up. We also need to keep and eye on E-15. Now that E-15 can be sold year-round, demand should increase. E-15 growth could be a lot larger than anticipated, which could also have a positive effect on corn prices.
Corn Prices May Continue to Struggle
Todd Hubbs from the Department of Agricultural and Consumer Economics at the University of Illinois wrote an article for Farmdoc Daily called, “Tracking the Pace of Corn Consumption,” and he notes that the pace is appears to be in sync with USDA consumption forecasts. If we don’t work out the trade dispute with China and there’s no recovery in the energy markets, it’s likely that corn prices will continue to struggle.
The USDA has estimated corn exports for this marketing year to be at 2.45 billion bushels. That’s 12 million bushels more than last year.
To date this marketing year, export inspections averaged 42.8 million bushels per week. Census Bureau export estimates for September came in at 207 million bushels and exceeded export inspection estimates by 23.5 million bushels. If that margin stayed constant through November 22, exports sit at 539 million bushels and need to average nearly 47.4 million bushels per week during the final three quarters of the year to reach the USDA projection. Unshipped export sales as of November 15 came in at 463 million bushels, 111 million less than outstanding sales a year earlier. Export commitments (shipments plus outstanding sales) are 1.5 percent higher than those of the previous year. The current pace of corn exports is encouraging, but sales and shipments need to continue the strength seen early in the marketing year.
Ethanol production in September and October of this year is up 1% from last year, and November’s ethanol production was up 0.7%. Ethanol production for the first quarter of this marketing year is anticipated to be up 0.7% from the same time last year, and corn used for making ethanol is also up slightly. Corn for ethanol production could use another strong year.
Total ethanol exports during the 2017-18 marketing year reached a record 1.635 billion gallons, up 18 percent over the previous marketing year. Ethanol export data is currently available for September and shows an increase of 6.7 percent over last year.
The WASDE estimates for corn held steady from November to December after a big jump in October. Carryout is tight. There’s a lot of speculation about what’s going to happen with corn prices. If the trade dispute with China continues, and ethanol doesn’t improve, we could be looking at lower corn prices.