Despite the higher crop forecasts, CME Group corn futures have held above multi-year lows set in late August.
“Futures prices for corn have been pretty resilient,” said Paul Meyers, vice-president, commodity analysis, Foresight Commodity Services, Inc., Naperville, Illinois, U.S. Earlier this month, the March 2017 corn future was trading near $3.45 a bushel, up 20c, or 6%, from its late August low near $3.25 a bushel.
Going forward, Meyers said he expects March corn to drop about 10c to around $3.35 a bushel. He doesn’t expect a significant decline because he thinks much of the bearishness of the large crop already was factored into the market. But he added that the strong value of the U.S. dollar (on a notable upturn since the presidential election) and lower crude oil prices will bring some pressure.
Support for corn futures has come mainly from strong export sales and higher ethanol production, Meyers said, as well as from ideas that U.S. corn plantings may fall in 2017 as current prices favor the planting of soybeans.
In its World Agricultural Supply and Demand Estimates report on Nov. 9, the USDA forecast total 2016-17 corn supply up 10% from 2015-16 at a record 17.013 billion bushels after adding carryover of 1.738 billion bushels and imports of 50 million bushels to 2016 production. Usage forecasts also are up from 2015-16, with feed and residual at 5.650 billion bushels, up 10%, use for ethanol at 5.300 billion bushels, up 2%, food and seed at 1.435 billion bushels, up slightly, and exports at 2.225 billion bushels, up 17%. Carryover on Sept. 1, 2017, was forecast at 2.403 billion bushels, up 38% from 1.738 billion bushels in 2016 and resulting in a stocks-to-use ratio of 16.4%, the highest since 2005-06.
The USDA forecast the average price of corn paid to farmers in 2016-17 to range between $3 and $3.60 a bushel, compared with $3.61 a bushel in 2015-16, with the November forecast up 5c a bushel from October “based on higher-than-expected observed early-season prices.”
Corn basis levels in the country were weaker than a year ago but still near average levels, Meyers said. With weaker futures, the basis has had to do the work of generating sales from the country, where farmers tend to favor storage rather than selling before the end of the calendar year mainly for tax purposes. As futures firmed since late August, the basis has weakened modestly. Relatively few transportation issues, and thus declining rail rates since October highs, also have been supportive to basis levels in the country.
Meyers said he believes the 10% increase in the USDA’s 2016-17 feed and residual forecast is “excessive” and the number is about 150 million bushels too high. A lower feed number would push carryover above 2.500 billion bushels, he said. But he added that he thought the USDA’s ethanol and export forecasts were okay.
In his Nov. 14 Weekly Outlook, University of Illinois agricultural economist Todd Hubbs noted strong livestock inventory numbers that included cattle on feed flat with a year ago, dairy cows up slightly, broiler chick placements up 2%, egg layers up 7% (with the 2015 number down because of avian influenza) and slaughter hogs up about 2%. But he also noted mitigating factors, including mild fall weather, increased availability of feed wheat and higher levels of distillers dried grains due to increased ethanol outturn but reduced DDG exports to China.
“Given the large projected increase ... monitoring feed and residual use projections will be important for the marketing year ending stocks and corn use totals,” Hubbs said.
The USDA forecast the average corn yield for 2016 at a record 175.3 bushels an acre, up just 0.2 bushels from its initial August forecast but up 1.9 bushels from October and up 6.9 bushels, or 4%, from last year.
Some members of the trade believe the USDA’s corn yield is too high, but Meyers said that since the USDA raised its corn yield estimate in November after lowering it the prior two months indicated the high number is more likely to stick and the naysayers are “running out of time” for it to come down with the final forecast due in January.
Hubbs noted USDA yield increases in November of 3 bushels per acre in Nebraska and South Dakota, 4 bushels in Minnesota and 17 bushels in North Dakota (with the latter also a surprise to Meyers), accounted for 78% of the total U.S. increase of more than 168 million bushels from October.
Record large global corn supplies also have weighed on domestic prices, Meyers said. Although U.S. corn export sales commitments were about double the year-ago pace, increased plantings in South America may provide more competition to U.S. exports in the months ahead, especially since Argentina has ended its export tax on corn (but not on soybeans). But he added that the record large corn supply and low prices will keep U.S. corn “pretty competitive” in the export market.
For next year, Meyers said he expects fewer acres planted to corn in the United States, but with the large supply and large carryover, “we’re not going to run out of corn any time soon.”
