The December futures price of corn decreased this past week back to levels not seen since late May despite substantial uncertainty regarding acreage and yield for the 2019 crop. A mild weather outlook, weak ethanol production and dwindling corn exports spurred much of the movement.
The recent escalation of the trade war with China drives much of the recent weakness. Supply considerations remain a concern and hold the key to any price rally in corn markets.
The potential is great for 2018-2019 ending stocks to increase by 100 million bushels more than the current U.S. Department of Agriculture projection of 2.34 billion bushels. A recent softening in weekly ethanol production and continued weakness in exports places a carryout near 2.435 billion bushels in place. USDA estimates corn exports at 2.1 billion bushels this marketing year. Exports through June total 1.84 billion bushels, a decrease of more than 5 percent from this past year during the same period. Accumulated exports through Aug. 1 came in at 1.96 billion bushels.
With slightly more than four weeks left in the marketing year, an additional 140 million bushels of exports is required to reach the current USDA estimate. Export inspections must average 32.6 million bushels per week. For the four weeks that ended Aug. 1, weekly export inspections averaged 23.9 million bushels per week.
Outstanding sales for this marketing year through July 25 total 153 million bushels, with China accounting for almost 11 million bushels. For the 2019-2020 marketing year there are no recorded outstanding sales of corn to China. Weakness in corn prices related to trade negotiations hinges on concerns about economic growth and general risk in commodities as a whole. While export demand remains uncertain, the recent pace of export inspections indicates exports may decrease – 40 million bushels short of the current estimate.
Weekly ethanol production weakened during the past couple of weeks. Tight ethanol profit margins indicate a continuation of the subdued pace of production through August. Current USDA estimates of corn use for ethanol sit at 5.45 billion bushels for the marketing year. Corn used in ethanol production through June totaled 4.47 billion bushels. Based on estimates of corn use using U.S. Energy Information Administration weekly ethanol production, corn consumption for ethanol as of July 26 is about 4.87 billion bushels. If ethanol production matches the levels seen in July during the next month, corn use for ethanol production may decrease – 50 million to 70 million bushels short of the USDA estimate.
If we assume reduced demand from ethanol and exports through August, 2018-2019 ending stocks of 2.435 billion bushels appears feasible. The recent decrease in corn prices may mitigate some demand loss. While reduced consumption holds bearish information, the prospects for corn production this year make recent corn-price movements appear overdone.
Acreage and yield concerns remain prevalent when considering supply for the 2019-2020 marketing year. It may be useful to determine the acreage priced into the market using the USDA consumption forecast. The relationship between the seasonal average farm price and the stocks-to-use ratio provides some insight into that question. The USDA estimates the average cash prices received and the average closing futures price for each month during the marketing year. Using the difference during the past five years as a basis for the calculation, the closing futures prices Aug. 2 indicated a marketing-year farm price of $4.04 per bushel. For this analysis, a $4.04 average farm price relates to a stocks-to-use ratio of 13.5 percent for the 2019-2020 marketing year. The estimated relationship between price and the stocks-to-use ratio uses data from the past 10 marketing years.
The recent projection for corn use sits at 14.255 billion bushels. The prospect of corn consumption at the projected level remains dependent on this year’s crop size. By assuming the current USDA total use for the next marketing year, a stocks-to-use ratio of 13.5 percent infers ending stocks for the 2019-2020 marketing year at 1.925 billion bushels. Using beginning stocks of 2.435 billion bushels and an import level of 50 million bushels during 2019-20, the corn crop implied by the current market price equals 13.695 billion bushels.
Assuming the 2019 U.S. corn yield comes in near the USDA forecast of 166 bushels per acre, a crop size of 13.695 billion bushels implies harvested acreage for corn at 82.5 million acres. Projections of planted acreage sit 8.1 million acres more than harvested acreage at present. The forecast for corn-planted acreage in 2019 totals 90.6 million acres less than those assumptions. An acreage total at that level seems well more than planted acreage despite the June acreage report indicating 91.7 million acres. Assuming a 168-bushel-per-acre yield, planted acreage comes in at 89.6 million acres.
Clarity on acreage totals this year may come from the Aug. 12 crop-production report. Many market analysts expect 3 million to 6 million fewer acres than reported in the June acreage survey. If the loss of acres materializes, corn prices should find some support. An acreage estimate near the June Acreage report total points toward continued weakness into the fall.