April 26, 2022
As of next week the 2021-22 corn marketing year will be two-thirds over. Even so, final demand figures and ending stocks are by no means a given, so we can probably expect continued price volatility.
For corn, USDA estimates consumption in the three main categories (feed/residual use, FSI/ethanol and exports) as follows: Feed use is currently pegged at 5.625 billion bushels, up just 27 million from the 2020-21 total, and this estimate was trimmed in the April WASDE. FSI/ethanol grind was increased in the same report by 25 million to 6.810 bbu with all of the increase coming from the ethanol sector. The current forecast represents a sizable 340 mbu or 5% increase over last year and is primarily driven by a reduction in COVID-19 restrictions which hampered consumption. Exports continue to be estimated by USDA at 2.5 bbu, a 253 mbu (9%) year-to-year decline.
At first glance, the corn feed/residual figure seems fairly consistent with last year along with the implied consumption suggested by the December and March stocks report for the first half of the year. Use was down about 140 million as high corn prices and reduced livestock/poultry numbers combined to offset the “residual” effects of a one billion bushel larger corn crop.
The outlook for the last half of the year and the USDA forecast suggest demand will be 160 million or so larger than last year, as very high wheat prices curb the amount fed during the summer months. This forecast does have some variability as during the past 5 years, USDA’s April estimate has been as much as 200 mbu too low to 200 mbu too high. Our bias is they are on the high side given the relative prices of corn and soybean meal.
As for FSI/ethanol consumption, the run-up in gasoline prices relative to corn and ethanol is making the latter more profitable to use and should stimulate corn grind. NASS data for the first six months of 2021-22 did verify a sizable increase in use, up 260 million bushels (9.5%) as the industry emerged from the various COVID-19 lockdowns of the prior year. However, $4.25 per gallon of gasoline does appear to be having an impact on driving habits; our thinking is corn demand for the ethanol sector is likely to be 20-25 mbu on the high side.
Pre-Covid, the USDA’s April forecast for this sector showed little variability, ranging from 10 on the high side to 26 million on the low side for the 2014/15 through 2017/18 crop years.
Now, exports are where considerable uncertainty remains. Russia’s invasion of Ukraine has seriously disrupted the latter’s export supply chain for wheat, corn, and sunflower seed/products. In the case of corn, pre-invasion monthly exports were averaging around 165 million bushels, but since the beginning of March, shipments are said to have been cut as much as 75%.
Initial market reaction to the invasion using the “residual supplier theory logic” had annual U.S. exports surging by as much as 400 million bushels to the 2.8 bbu level. More so given China’s estimated corn need, Ukraine’s reduced role in helping meet those requirements, and existing South American supply and phytosanitary restrictions. The range of the USDA’s April carry-out estimate versus the final over the past five years has been as much as 235 million too high to 213 too low.
As one of our retired brokers so often would remind us in the past, “problems long perceived seldom occur.” Other than a flurry of business the first few weeks following the invasion, weekly export sales have been good—but not great, with the latest 4-week average of 34 mbu per week just two more than the 5-year seasonal pace. And there is probably good reason for this as the graph below illustrates.
Unshipped export sales by major destination through April 14 (left axis, mbu) are summarized. The total is the second-highest on record for mid-April but down noticeably from 2021 due to less on the books to China. Note also that non-PRC/non-Unknown unshipped sales are rather ho-hum, steady versus a year ago. Equally important is the line (right axis, mbu) illustrating actual/estimated April through August corn exports for 3 of the 4 principal U.S. competitors—Argentina, Brazil and Russia with Ukraine excluded for obvious reasons. Key to this year’s estimate is a solid finish to Brazil’s safrinha crop and some pretty hefty fobbing rates for July and August from that origin.
For the moment, the three competitor April-August export total could/should be RECORD large at 1.6 bbu and 400 million MORE than last year. With July/August Brazil premiums at a 70-75 cent discount to the Gulf and in the absence of a weather scare (here or there), foreign buyers may continue to go hand-to-mouth from the U.S. for their immediate needs, scrape the bin bottoms and aggressively book South American corn for mid-summer and beyond.
The USDA’s 2.5 bbu corn export forecast still appears a little on the low side to us by 75 million bushels with much dependent on how well the Brazil crop finishes. Our 1.485 bbu 2021-22 ending stocks estimate corresponds to a 10.0% stocks-to-use ratio with the USDA being slightly tighter at 1.440/9.6%. Keep in mind both of those rank among the eighth tightest of the past 34 years.
For certain, volatility will be with us through the growing season.
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