Even the 4% year-over-year reduction of 2017 corn acres forecast in the U.S. Department of Agriculture’s March 31 Prospective Plantings report offered little hope for higher corn futures values. Why? Expert opinion expects the acreage forecast to be revised higher, as has been the case for most of the last decade.
|Don Roose, president of U.S. Commodities in West Des Moines, Iowa, U.S.|
The USDA’s forecast of 2017 corn planted area of 90 million acres is “a moving target,” said Don Roose, president of U.S. Commodities in West Des Moines, Iowa, U.S.
“In 8 of the last 10 years, from March to June, corn acres have increased,” added Karl Setzer, analyst at MaxYield cooperative in West Bend, Iowa, U.S. “To see that happen again would not be a surprise.”
The USDA March 31 Prospective Plantings report forecast 2017 corn planted area at 90 million acres, down 4 million acres from 2016. The forecast was below the average of pre-report trade estimates at 91 million acres, and corn futures advanced in response to the news. But those gains faded as the market again considered the abundant world supplies.
March 31 data on corn stocks was unequivocally bearish. March 1 corn stocks were estimated by the USDA at 8,616 million bushels, up 794 million bushels, or 10%, from a year earlier and above the average trade expectation of 8,551 million bushels.
“What we have is record stocks,” Roose said.
He said corn was likely to remain in a “supply bear market” this year because forecast acreage will remain steady or increase, ethanol demand was “mature” and weather conditions “should be okay.” Setzer added that some meteorologists see about a 50/50 chance of an El Niño weather pattern developing this summer, which may raise corn yields above the trend line.
“That means stocks are likely to increase rather than decrease,” Roose said, adding that corn futures prices at harvest were likely to trade down to $2.90 to $3.20 a bushel, well below the cost of production.
Setzer said, on top of normal harvest pressure, there may be an additional price burden as producers market some of the old-crop corn currently being held in on-farm storage.
Export demand wasn’t likely to offer much relief from price weakness. Both Brazil and Argentina were on track to produce very large crops, and corn buyers around the world were expected to switch much of their business to those countries at least for part of the year.
A wrinkle in the export picture was the possibility of deteriorating trade relations between Mexico, a major corn importer, and the United States. Rhetoric from the Trump administration about trade and building a wall between the countries has engendered talk that Mexico may retaliate by buying its corn from South America, even if it has to pay more.
“I see where there could be a lot of problems potentially, the major one being with Mexico,” Setzer said. “They’re one of our main corn buyers. Mexico will take more expensive corn from Argentina and Brazil just to prove their point.”