USDA’s 2020 planting intentions for corn don’t bode well for the supply side of the corn price equation. USDA pegs the crop at 97 million acres nationwide.
“Even if farmers switch a million or 2 [million] acres to soybeans, that still leaves the potential for a lot of corn come fall, assuming trend yield,” says Michael Langemeier, a Purdue University agricultural economist and associate director of the Purdue Center for Commercial Agriculture.
“There may be some switching to soybeans, but overall, I don’t expect lots of switching,” he adds. “To the extent some producers switch from their March planting intentions, they will most likely move away from corn after corn and back to a corn-soybean rotation, especially in western Corn Belt states.”
Jim Mintert, a Purdue ag economist and director of the Center for Commercial Agriculture, says there is also the potential for a lot of soybeans this fall. “So, we turn to the demand side for both crops, and particularly for corn, it’s not real rosy there, either,” he says.
In recent years, ethanol and livestock feed accounted for almost 80% of corn demand nationwide, usually split almost evenly between the two, Mintert says. The ethanol market was deteriorating due to low oil prices and resulting weak gas prices even before COVID-19 became a crisis in the U.S.
Iowa State University data suggests that corn needed to drop another 30 cents per bushel below the April 1 basement price before ethanol producers could even break even. That would put corn well below $3 per bushel in Iowa, Langemeier adds.
“We don’t expect the ethanol picture to improve very quickly,” Mintert says. “We look for a slow recovery from the global recession developing now as a result of COVID-19.”
Total U.S. corn use for ethanol in 2019 was pegged at 5.43 billion bushels by USDA in March, but if ethanol plant shutdowns extend into summer, use could fall as low as 5 billion bushels.
U.S. corn exports were projected down 16% for the 2019 crop year versus 2018 in USDA’s March report, Mintert says. But based on business on the books by April 1, exports could drop even more than USDA forecast. “Given what’s happening with COVID-19, there’s very little chance exports will improve enough to hit USDA’s target,” Mintert says.
The only bright spot for corn is higher livestock feed use. “It’s still not where you might think with record livestock production, because animals are much more efficient today,” Langemeier notes. “Beef prices are falling, but possible future impacts on cattle numbers likely won’t impact feed usage in 2020.”
Soybean exports and soybean crush are keys to soybean demand. Soybean crush is up somewhat due to increased feed use. However, soybean export shipments and sales for future deliveries are down so far.
“The soybean export picture is still very uncertain,” Mintert says. “We’re waiting to see how exports will play out based on the Phase 1 trade agreement with China. It’s just too soon to know where total soybean exports might wind up in 2020.”