Prices could start to rise if an expected 159 million tonnes of ending stocks materializes by the end of 2018-19
Global corn stocks are finally starting to tighten up, says an analyst.
The U.S. Department of Agriculture forecasts 159 million tonnes of world ending stocks by the end of 2018-19. That is a 53-day supply of the crop.
“That’s getting pretty tight in the year ahead,” Arlan Suderman, chief commodities economist with INTL FCStone, said in a recent webcast.
“That’s pretty good historically. Remember back in the mid-1980s when it was about a 165 to 167 day supply?”
If corn stocks from China and the U.S. are removed, it drops to a 39-day supply, the same level it was at six years ago when corn prices spiked to a record of more than $8 per bushel.
Suderman isn’t forecasting that kind of a bull run but he believes prices will be higher than the US$3.80 per bu. average cash price the USDA is forecasting for the marketing year, and that could help bolster other grain and oilseed prices.
The USDA is using a U.S. feed usage number of 5.375 billion bu. in its 2018-19 supply and demand estimates, down from 5.5 billion last year.
“With expanding beef, pork and poultry production they’re calling for a decrease in feed usage of 125 million bu.?” he said.
Suderman realizes there is more distillers grains and soybean meal around these days, but he said it doesn’t make sense there would be less corn consumed for feed. He forecasts 5.6 billion bu. of feed demand.
The upshot is that Suderman’s carry-out number of 1.484 billion bu. is well below the USDA’s number of 1.682 billion bu. and it is also below an important threshold.
“This is when dropping below 1.5 billion (bu.) makes a difference, because we’re dropping below the comfort level of the market,” he said.
Suderman’s marketing year average cash price estimate is $4.65 per bu. But he believes corn prices could climb as high as $6.35 per bu. if the average yield came in at 164 bu. per acre instead of the USDA’s trend line 174 bu. estimate.
That would result in 971 million bu. of carryout.
“Boy, does that tighten things up,” he said.
There is also the potential for increased import demand from China, which is forecast to have 60.5 million tonnes of ending stocks, down from 79.6 million tonnes this year and 100.7 million tonnes the year before that.
That is 89 days of corn supply for the country. Something interesting happened the last time supplies were that low in 2006-07.
“China started opening the floodgate to allow imports of corn. The question is will they do the same thing again?” said Suderman.
He noted that the China supply number does not include government reserves. Nobody knows how big those reserves are or what condition the corn is in.
