Massive U.S. corn stock outlook weighs down market

The most burdensome American corn stocks since the early 1990s could be a major depressing factor on all grain prices this year.

The United States Department of Agriculture last week forecast 2020-21 year-end U.S. corn stocks at 3.32 billion bushels, up more than a billion from the current year and the most since the 1980s.

If we look at the stock-to-use ratio, which measures the relative burden of the stocks, we see the number rise to 22.4 percent, the most since 1992-93.

In the last four years, the stocks-to-use ratio was around 15 percent. Only in the 1980s was the burden higher, causing a farm foreclosure crisis that forced the government to massively increase aid and institute land set-aside programs.

The USDA’s supply and use forecasts are based on the March 31 planted acres report that pegged seeded area at 97 million acres, up from 89.7 million last year. The forecast assumes a trend line average yield of 178.5 bushels per acre, up from last year’s 167.8, which suffered from several weather issues.

It forecasts production at a record 15.995 billion bu. When you add the carry-out from this year of 2.098 billion bu. and a small amount of imports you get record total supply at 18.118 billion.

That 2019-20 carry-out estimate has been rising the past few months as the COVID-19 crisis shrinks corn demand, especially from the ethanol industry. Ethanol demand plunged along with gasoline use as the pandemic caused Americans to stay home.

The current USDA report pegs 2019-20 corn for ethanol demand at 4.95 billion bu. In April, the estimate was 5.05 billion and in March it was 5.425 billion.

Ethanol production and use is starting to recover along with gasoline demand as states begin to re-start their economies.

But I would not be surprised if USDA continues to trim the 2019-20 corn-for-ethanol demand number because I think it assumes an overly optimistic rapid return to near normal economic and driving activity.

USDA forecasts 2020-21 corn for ethanol demand at 5.2 billion bushels, or about four percent less than what was the pre-COVID estimate for the current year.

That also seems optimistic, implying no resurgence of the virus in the autumn that would require a reinstatement of restrictions on the economy and travel.

The USDA forecasts a 2020-21 year-average corn price farm price of only US$3.20 per bu., down from $3.60 in the current year and $3.61 in the year before.

The USDA also sees ample global corn supply with stocks at the end of 2020-21 rising to 339.62 million tonnes, up from 314.73 million at the end of the current year.

China’s massive stocks distort the global number. But even with it removed, the stocks come in at 139.57 million tonnes, up from 106.66 million in the current year.

Obviously these numbers are very early forecasts and there is a lot of weather between now and harvest.

But U.S. corn planting is going great with 67 percent in the ground, ahead of the five-year average for that date of 56 percent and well ahead of last year when only 28 percent was complete because of cold, wet weather.

There was widespread frost on the Mother’s Day weekend in the U.S. corn belt but the early assessment was that it did not affect the growing point below the surface so damage was likely superficial.

Recent dry weather helped speed planting, but going into the season there was good soil moisture.

While the prospect for ample supply weighs down the market, a wild card is potential demand from China.

There is talk that China might boost corn buying to meet commitments made under Phase One of its trade deal with the U.S. signed in January.

China’s domestic corn stocks are still comfortable but some argue that with U.S. grain prices currently depressed, much cheaper than prices for Chinese corn, it might be advantageous for Beijing to make goodwill purchases to bolster state reserves.

The modest fence mending between Washington and Beijing from the trade deal in January has completely fallen apart as U.S. President Donald Trump blames China for not containing the coronavirus and for failing to be more open about its virulence early in the outbreak.

The corn market is taking a “show me the money” attitude and will likely rally only in the event that China actually starts buying millions of tonnes.

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