Grim corn outlook chills grain market

Higher-than-expected planting plans in the U.S. and a plummeting fuel market could see prices fall below $3 per bushel

The market outlook is grim for the crop that sets the tone for the entire grains and oilseeds sector.

Corn bottomed out in 2016-17 with an average farm price of US$3.35 per bushel.

“You’re looking at something below that for 2020-21 potentially,” said Michael Langemeier, associate director at Purdue University’s Center for Commercial Agriculture.

“I don’t want to be Dr. Doom here, but there’s a potential for some below $3 corn.”

Langemeier and his colleague, Jim Mintert, director of the Center for Commercial Agriculture, held a webinar last week to provide their thoughts on the release of the U.S. Department of Agriculture’s March Prospective Plantings report.

The USDA is forecasting 97 million acres of corn in 2020, which is three million acres higher than what the trade was expecting.

That bearish estimate for the crop came at a time when demand for corn is rapidly evaporating.

The USDA was counting on the ethanol sector to consume 5.43 billion bushels of corn in 2019-20, accounting for 39 percent of total demand.

That estimate was made before Saudi Arabia and Russia got into an oil spat that has blindsided the ethanol industry.

The West Texas Intermediate crude oil price hit US$20 per barrel last week, which is one-third the value it was a year ago.

Gasoline prices that usually trade at a premium to ethanol are now half the price. That is forcing ethanol margins into the red despite lower corn prices.

Plants that were making nearly 40 cents a gallon at the end of 2019 were losing 12 cents a gallon at the end of March.

“We think the impact on the ethanol, and in turn the impact that’s going to have on the corn market, is pretty significant,” said Mintert.

He thinks there could be a 400 million bu. reduction in 2019-20 ethanol demand.

Mintert is also predicting continued lacklustre export demand for the crop. The USDA is forecasting a 16 percent drop versus last year, but as of mid-March shipments were down 28 percent.

He said there is no chance exports will get back up to the USDA’s forecast by the end of the 2019-20 crop year and will likely remain at 28 percent below last year’s volumes.

Feed demand is the one bright spot because of record U.S. meat production in 2020, but it won’t be enough to offset slumping ethanol and export demand.

The USDA is forecasting a 13 percent corn stocks-to-use ratio at the end of 2018-19, but Mintert said it will likely be closer to 17 to 18 percent.

Arlan Suderman, chief commodities economist with INTL FCStone, thinks the reduction in ethanol demand could be twice as large as Mintert is forecasting.

He estimates 4.63 billion bu. of corn use by the ethanol industry in 2019-20, which is 800 million bu. lower than the USDA’s estimate.

Suderman believes the ethanol sector will purchase half its normal volume of corn in April and May and then ratchet back up to usual volumes in the summer months.

He thinks the reduced ethanol demand will result in 2.5 billion bu. of carryout in 2019-20.

“There is nothing bullish about that,” Suderman said in a webinar.

Supplies will become even more bloated in 2020-21 if growers plant 97 million acres of the crop. Using a trend line yield of 178.5 bu. per acre, that results in nearly 16 billion bu. of production.

Carryout would be 3.74 billion bu. at the end of 2020-21.

“There is nothing bullish about that at all,” said Suderman.

“Corn will be a little bit of an anchor on wheat because there is a lot of wheat fed around the world.”

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