Demand up 275 million bushels | Corn for feed increased 125 million bu. from the June estimate
CHICAGO, Ill. — At slightly more than two billion bushels, this year’s projected U.S. corn carryout would be the largest in a decade and represent more than 50 days of use.
However, as imposing as that supply total may appear, American domestic demand is also increasing, which should draw down those inventories at a steady pace and serve to underpin corn prices going into next year.
The U.S. Department of Agriculture has increased its total U.S. corn demand estimate by 275 million bu. (2.1 percent) since June because of improved end-user profits fuelled by multi-year low corn prices.
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This looks set to increase demand further down the line if domestic ethanol production continues to increase.
The strong commitment by U.S. farmers to store rather than sell their corn is also likely to offer price support going forward, although the fact that those stores of corn must eventually be sold may ultimately cap any demand-led price rallies, regardless of how strong consumption becomes over the near to medium term.
The corn trade has been rightly preoccupied for the past several months with chronicling the development of this year’s record-setting U.S. crop, which is set to top the 14 billion bu. mark for the first time.
However, just as producers started harvesting this year’s bumper crop, end-users of the grain increased their buying and consumption of corn amid the friendly price environment that prevailed in late summer and early autumn.
Projected corn use by livestock feeders, the largest corn user group, is up 125 million bu. from the June estimate. It was the result of a combination of firm cattle and beef prices and weak corn values, which boosted cattle production margins and promoted herd expansion.
Good pasture conditions allowed ranchers to keep their herds out grazing for longer, but the flow of cattle through corn-dependent feedlots is expected to increase as winter sets in.
Profit margins for ethanol producers, which make up the second biggest corn user group, have also widened lately. This is expected to promote a further expansion of the corn-based fuel for the remainder of the year.
The USDA already increased its corn use projections from the ethanol sector by 25 million bu. in its latest assessment, which marks a 100 million bu. rise for that demand source since June.
However, ethanol’s corn consumption could rise by year end if plant operators increase output as expected over the remainder of the year.
Corn prices could well gain sustained upside momentum if in-creased corn purchases from ethanol traders leads to heightened competition with feedlot buyers, especially if overseas buyers also enter the fray and lead to firmer U.S. export orders.
The USDA has increased U.S. corn exports by 50 million bu. since June but has opted to hold its target rate flat for the past three months amid a fairly quiet spell on the shipments front.
A major reason for recent lackluster corn exports has been the overwhelming focus on soybeans, which have taken precedence in most export channels as international buyers work to restock supply pipelines.
However, corn is expected to take up a growing share of the supply flow once the initial waves of fresh soybean supplies have been dispatched and should see a notable increase in purchase orders before year end.
As promising as the demand outlook may seem, the upside for prices could prove to be limited by the amount of corn stored on farms this autumn.
Cash-rich growers across the Midwest have grown accustomed to corn prices in the $4 to $5 a bu. range and have been unimpressed by the recent slump in cash values into the low $3 region.
Rather than accept that relatively poor market price, many growers have opted to lock their grain away for a few months, hoping prices rebound into profitable territory.
History has shown that such a storage play can pay off handsomely.
However, the fact that so many growers are storing a huge chunk of the national crop this year means there is likely a limit in how far prices can increase before bursts of farmer selling eventually caps the market.
As well, corn buyers are aware that farmers will be forced to sell off most of their supplies ahead of next year’s harvest and so will not easily be lured into chasing rallies in the interim.
This especially applies to international consumers, who are also mindful that one-third of all corn exports can be acquired from Southern Hemisphere growers. These growers operate on a different rhythm and cost structure than their North American counterparts and may be forced to make sales at prices below where U.S. growers are prepared to sell.
This means American growers could well be undercut by overseas rivals if they hang on to their supplies for too long.
U.S. farmers need to look beyond their own on-farm supplies and make sure they exploit pockets of firm demand with timely sales while they can, even if prices are not quite what they would like.
