Despite the recent market correction in the corn market over the past two days, due in large part to biofuel blending exemption waivers granted to refineries on Tuesday night, corn bulls received the feed they needed in the January USDA reports to keep moving up.
Even amid domestic demand reductions to livestock feed, ethanol, and – surprisingly – exports, worse than expected 2020 yields erased 151 million bushels from 2020/21 ending stocks according to the January World Agricultural Supply and Demand Estimates (WASDE) report last week.
A tough growing season finally caught up with corn yields last fall as USDA cut the national corn yield to 172.0 bushels per acre, down 3.2 bpa from the November 2020 estimate. “Overall it seemed to be one of those years where actual yields at harvest were just not as good as they appeared most of the growing season,” USDA-NASS’s chief of the crops branch, Lance Honig, commented on Twitter after last week's reports
A small crop equals small stocks
U.S. corn supplies are now at the tightest level since the 2013/14 marketing year. It was the rally farmers across the Heartland have been waiting for. Some buyers were forced to limit delivery hours last week as sales sky rocketed.
Argentine and Brazilian corn production for 2021/22 was slashed by USDA amid drought concerns. The Brazilian second sowing of corn, known locally as the safrinha crop, is likely to be delayed and significantly downgraded in volume due to dry planting conditions which led to a slow start to soybean planting last fall. The two countries are respectively the second and third largest corn exporters in the world.
Combined with the U.S., corn shortfalls in world’s largest exporters accounted for 423 million bushels of corn evaporating from the global supply chain in the January WASDE report. That’s just shy of a fifth of anticipated U.S. corn export volumes in 2020/21.
Just two months ago, U.S. corn stocks fell to a five-year low on the smaller 2020 crop. But January’s quarterly grain stocks report told another side of the story. Revisions to off-farm storage due to “updated reports from facilities,” per Honig’s comments on USDA-NASS’s Twitter feed, warranted USDA’s 76-million-bushel cut to September 1, 2020 corn stocks, indicating that heavy usage is on pace to challenge records this year.
Corn usage during June and September 2020 was the second highest on record over the past 27 years. Unseasonably high basis levels for the second straight harvest season support rapid usage rates, especially if the ethanol industry can mount a comeback in the pandemic era.
USDA has more than doubled projections on Chinese corn imports past four months, adding another 39.4 million bushels to the forecast last week for a total of 689.0 million bushels of corn imported into China during the 2020/21 marketing year.
The increase came amid higher production estimates from China in 2020/21, which paints an increasingly desperate picture for Chinese livestock feeders searching for cheap sources of feed. And that bodes very well for U.S. corn growers, as evidenced by the current rally.
With tight stocks and increasing demand raising prices, USDA cuts to usage targets for livestock feed, ethanol and exports – especially with record cord commitments on the books – hint at expected demand rationing as international buyers are increasingly priced out of the market.