April 14, 2020
Higher corn ending stocks in the April World Agricultural Supply and Demand Estimates were primarily due to a reduction in the annual bushels of corn used for ethanol production, while the soybean reduction was due to reduced estimates in annual soybean exports. The report was regarded as mainly “bearish” for both the corn and soybean markets in the coming months, which added more downward pressure to both near term grain markets and forward contract prices for fall 2020.
The March 31 USDA Planting Intentions Report estimated a large increase in both U.S. corn and soybean acreage for 2020, which is likely to put further downward pressure on the grain markets going forward this year.
Following are some highlights of the latest USDA reports.
Based on the WASDE Report, the projected corn ending stocks for the 2019-20 year, which ends on August 31, are estimated at 2.092 billion bushels, which was increased by 200 million bushels above the March report. The projected corn ending stocks were nearly 90 million bushels above the average grain trade estimate. The 2019-20 corn ending stocks would be a decline from 2.22 billion bushels in 2018-19 and 2.14 billion bushels in 2017-18. USDA reduced the projected total corn used for ethanol in 2019-2020 by 375 million bushels, which was somewhat offset by a projected increase of 150 million bushels in corn used for feed. The total corn usage for 2019-20 is now estimated at 13.86 billion bushels, which is a decrease of over 400 million bushels from the 2018-19 level.
The March 31 USDA Planting Intentions Report is estimating total U.S. corn acreage for 2020 to be just shy of 97 million acres, which would be the highest level in several years. The 2020 projected corn acreage compares to 89.7 million in 2019 and 89.1 million acres in 2018. The 2019 corn acreage was greatly impacted by a late planting season and a large number of prevented plant acres in some areas of the Midwest. If the 2020 U.S. average corn yield returns to trend line yield levels, which is near 176 bushels per acre, corn ending stocks are likely to increase even more by the end of the 2020-21 marketing year. This is likely to put further downward pressure on the corn market prices.
USDA is now estimating the average U.S on-farm corn price for the 2019-20 marketing at $3.60 per bushel, which was a decline of $.20 per bushel from the March WASDE estimate. The current USDA projected corn price compares to the final national average prices of $3.61 per bushel for 2018-19 and $3.36 per bushel for 2017-18. Further adjustments to the final market year average price could occur in the coming months.
According to the April 9 WASDE Report, the projected soybean ending stocks for 2019-20 are now estimated at 480 million bushels, which was an increase of 55 million bushels from the March estimate. The increase was primarily due to a projected reduction from one month to the next of 50 million bushels in final soybean export levels for 2019-20. The April carryover estimate was about 50 million above the average projections by grain marketing analysts. The projected 2019-20 U.S. soybean ending stocks level are still just over half of the 2018-19 soybean carryover level of 909 million bushels, which was impacted by the Chinese trade war and was the highest level ever recorded.
Based on the March 31 USDA Report, planted soybean acres for 2020 are projected at 83.5 million acres, which would be an increase of nearly 10 percent from 76.1 million acres in 2019. The planned 2020 soybean acreage is still well below the 89.2 million acres in 2018 and the record U.S. planted soybean acres of 90.2 million acres in 2017. Similar to corn, the final 2019 soybean acreage was reduced due to the late planting season and increased prevented plant acres in the Upper Midwest.
USDA is now estimating the U.S on-farm soybean price for the 2019-20 marketing year at an average price of $8.65 per bushel, which is decline of $.05 per bushel from the March estimate. The 2018-19 soybean market year average price was $8.48 per bushel, which was at lowest level since 2006. The projected 2019-20 soybean price also compares to final U.S. average soybean prices of $9.33 per bushel for 2017-18, $9.47 for 2016-17, and $8.95 per bushel for 2015-16.
Impacts of the lower projected corn and soybean prices
The March 31 USDA Grain Stocks Report estimated total corn stocks at 7.95 billion bushels and soybean stocks at 2.25 billion bushels, with over half of those grain stocks in on-farm storage. Many grain marketing analysts suspect that a large number of the on-farm grain stocks are in the Upper Midwest, with a high percentage of the corn and soybeans not yet priced. The sharp drop in local cash corn prices in recent weeks, following the coronavirus outbreak in the U.S. and reduced ethanol demand, is costing Midwest farmers millions of dollars. There has also been a fairly significant decline in cash soybean prices at many locations in recent weeks.
If there is a “silver lining” to the recent decline in corn and soybean prices, it would be that 2019 farm program payments may increase for many producers. The payments are based on the final 2019 market year average price (MYA) from September 1, 2019 through August 31, 2020. The decline in the projected 2019 corn MYA price to $3.60 per bushel means that there would be an estimated 2019 price loss coverage (PLC) payment of $.10 per bushel in October 2020. A large number of Midwest corn producers switched from the ARC-CO program to the PLC program option for the 2019 and 2020 crop years. The lower projected 2019 MYA prices for corn and soybeans will also potentially increase estimated ARC-CO payment levels for corn and soybeans in some counties, as well as increase the ARC-IC levels for some producers that chose that farm program option for 2019.
What could change going forward?
There has been a drastic downturn in ethanol production and consumption in the past couple months due to the oversupply of oil worldwide and the coronavirus outbreak in the United States and around the world. Many ethanol plants in the U.S. have either cut back production or temporarily suspended production, which has greatly reduced the demand for corn in some locations in the Midwest. Many experts feel that the overall spring and summer demand for gasoline, and ultimately for ethanol, will continue to be well below normal. This could result in further reductions in 2019-20 corn usage and increased levels of corn ending stocks, as well as additional reductions in the final 2019 corn MYA price, in future monthly WASDE Reports.
The other change that could occur are adjustments in the final planted corn and soybean acres in 2020. Obviously, the challenges in the ethanol industry and the rapid drop in corn prices since the coronavirus outbreak may lead some farm operators to consider switching some intended corn acres to soybeans and other crops. However, current soybean prices for fall 2020 are also below breakeven levels for many producers. 2020 planting decisions will also be dictated by the amount of crop inputs that have already been purchased and by planting conditions in late April and early May.
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