World corn supplies are getting tight.
The U.S. Department of Agriculture projected global 2019-20 ending stocks minus China at 98.71 million tonnes in its June World Agricultural Supply and Demand Estimates report.
That is down 24.19 million tonnes from its May estimate.
Arlan Suderman, chief commodities economist at INTL FCStone, said the new carryout estimate amounts to a 38-day supply of the crop, which is smaller than it was in 2011 and 2012 when corn prices were high.
“There is very little margin for error in this corn balance sheet,” he said during a webinar.
Most of the reduction in global ending stocks is due to the USDA’s revised production estimate for U.S. corn production.
It is forecasting 13.68 billion bushels, down from the May estimate of 15.03 billion bu. That would be the smallest crop since 2015-16.
“Unprecedented planting delays observed through early June are expected to prevent some plantings and reduce yield prospects,” said the USDA.
It is forecasting 89.8 million acres, down from its May estimate of 92.8 million acres. The USDA expects an average yield of 166 bu. per acre, down 10 bu. from the May forecast.
Those were both larger drops than most in the trade were anticipating.
“This is by far the biggest reduction for yield in the report that we’ve seen in June,” said Suderman.
He agreed with the USDA’s new yield estimate. More than half of the U.S. corn crop was planted six to eight weeks later than farmers in the U.S. Midwest typically like to have it in the ground. That usually corresponds to lower yields.
The weather forecast for July and August calls for more wet weather and no notable heat waves.
“It is going to have an impact on yields,” he said.
The USDA dropped its corn planting estimate by three million acres. Suderman believes it will be at least double that as farmers opt for prevented planting crop insurance.
It all adds up to deep cuts in U.S. corn production.
“We’re looking at the potential for the shortfall in U.S. corn production this year to be larger than the entire Brazilian safrinha corn crop,” said Suderman.
“Let that sink in for a bit.”
He doesn’t think the market has let it sink in enough and that corn prices will continue to climb in the next couple of months.
The USDA is forecasting a season average farm price of US$3.80 per bu., which is up 50 cents from its May estimate.
Suderman thinks there will be more price appreciation.
“I do not think the government has a full appreciation for the scope of the problem, but this was a very reasonable first step,” he said in an email.
“The trade will now expect more cuts to production in future reports, which should translate into appropriate revisions in the cash price forecast as well.”
Suderman’s 2019-20 U.S. corn carryout estimate is 1.33 billion bu., which is 348 million bu. below the USDA’s forecast, largely because he expects fewer acres and more feed demand than the USDA.