(AgriNews) – Corn’s return to low prices last seen five years ago has sparked demand interest after back-to-back record production that loaded the supply chain.
On the supply side, the U.S. Department of Agriculture projects a 2 billion-bushel surplus, but there is some question of what the actual production totals will be due to discrepancies between USDA and Farm Service Agency estimates.
FSA released an updated report Dec. 15 that certified producers have 86.3 million corn acres, only 443,000 more than reported in November and 4.6 million less than the current USDA estimate of 90.885 million acres.
As in past years, the difference will eventually narrow to a bit less than three million acres. If the USDA harvested acreage estimate is reduced by 1.6 million acres next month, with no change in the yield estimate, the 2014 production estimate would decline by 277 million bushels.
The Jan. 12 USDA stocks and production estimates will settle much of the uncertainty about 2014-2015 marketing year corn supplies.
“Right now the market is leaning a little bit toward maybe a reduction in planted acres, which would move the production estimate down,” said Darrel Good, University of Illinois agricultural economist, at the Farm Economics Summit.
“But it’s clearly a big crop. It’s more than we could use this year. So the question in the market is how burdensome the big crop will be. Will it be burdensome? Will it be tighter than we think?”
Steady Demand
While the supply side teeters on uncertainty, the ethanol, exports and residual use demand side remain supportive and keep prices from dumping.
For the first quarter of the marketing year, USDA projected corn used for ethanol at 5.2 billion bushels, slightly higher than last year. Ethanol production was about 5 percent larger than the same quarter last year, compared to the 0.3 percent increase for the year implied by the USDA forecast of corn consumption for ethanol production.
Ethanol production was a record 290.5 million gallons for the week ending Dec. 5.
Good looks for domestic ethanol consumption to remain well supported and ethanol production is expected to remain large well into the second quarter of the corn marketing year.
“It might be the second half of the marketing year before we start seeing some weakness there,” he said.
The pace of exports remains below the weekly average rate needed to reach the USDA’s projection of 1.75 billion bushels for the year, and there was some speculation that corn exports have suffered due to record large weekly soybean exports that have tied up export infrastructure.
If the large soybean exports explain the slow pace of corn shipments, corn shipments should begin to accelerate as soybean exports slow.
“The expectation for a more rapid pace of corn exports is supported by the recent level of new export sales. We have very large sales on the books,” Good said.
Those new sales averaged 39 million bushels per week during the four weeks ended Dec. 4, and shipments plus outstanding sales now account for 53 percent of the USDA’s export projection for the year. New sales need to average only 21 million bushels per week in order for total export commitments to reach the projected 1.75 billion bushels.
Good said the export demand has been slowed partially due to China’s switch to exporting more sorghum and increased world wheat stocks, “but we should be right on target for the USDA’s projection.”
Price Is Right
Low feed prices and increases in livestock numbers will bolster corn’s feed and residual use and USDA concurs with an increase.
“We’re thinking with a big crop, low prices, livestock numbers on the rise that we should confirm a higher rate of disappearance,” Good said.
The economist said although the 2 billion bushel-corn surplus appears large to where it has been, one has to recognize that stocks have been relatively low since 2010.
“Two billion bushels puts us back to a more normal range of about 15 percent consumption,” he said.
“For the year, USDA has a wide range for the average marketing price. The mid-range is $3.50. For the first part of the marketing year, we’ve averaged just a bit higher than $3.50.
“Given our rate of consumption and if we see that production number tweak down in January, I’m thinking we will go a bit higher than that — $3.50 and $3.60 to $3.70 would be a more reasonable expectation.”
Attention soon will turn to next year’s crop, beginning with a discussion of how many corn acres will be planted.
Crop Economics
There are some indications that there may be a decline in corn acres in 2015 due to the corn versus soybeans economics.
“People are talking about it being more expensive to plant corn than it is soybeans. Also until recently the price ratio favors soybeans over corn,” Good said.
“If you do a budget, soybeans pencil out pretty good. So the thinking is if a decision was made today, we’d probably see fewer corn acres than last year.”
Good provided his forecast of a scenario that could play out for corn in 2015, using 1 million less acres and an average yield of 164 bushels per acre, slightly over trend yield.
Such a scenario would produce 943 million less bushels of corn, and Good believes there is some room for increased consumption. Ending stocks in this formula would be 1.657 billion bushels.
“My experience is if you’re looking at ending stocks of less than 1.5 billion bushels, the market starts getting nervous. This kind of a balance sheet would push it down toward that 1.5 billion bushels and would provide a little bit of strength for corn prices,” he said.
With that balance sheet, Good estimated an average price of $4.20 for the 2015-2016 marketing year.
“Frankly, I think that’s bit conservative. We could average a big higher than that. The new crop market is about there at this point. I think we’re in the process of turning corn prices back to more reasonable levels in the year ahead,” he said.
