By Larry Shonkwiler
Coronavirus has probably introduced more uncertainty into the old crop corn balance sheets than the market has seen in quite some time. This could create some additional surprises between now and the end of the crop year in August.
Clues from the past
Looking back at the past five years reveals that the average change between the May and the final Supply/Demand Report for corn has resulted in ending stocks DECREASING an average of 21 million bushels, a rather small change of just 1% of the May stocks forecast.
The range has been from an increase of 126 million (18-19) to a 120 reduction (14-15). Looking at the major consumption classes, Feed/Residual, FSI (food, seed, industrial)/Ethanol, and Exports, we find that
- The average change for Feed/Residual use between the May forecast and the final total is a 38 million bu. decline with a range of being 196 million LESS THAN expected (17-18) to 132 MORE THAN expected (18-19).
- For FSI consumption, the average difference between May and the final figure is just an 8 mbu decline. The range for the FSI forecast varies from being 48 mbu MORE THAN expected (14-15) to 109 mbu LESS THAN forecast (18-19). Finally,
- The export category reveals the most variability between the May forecast and the final with the average difference of a 53 million increase. The range is from 213 mbu MORE THAN forecast (17-18) to 235 LESS THAN (18-19) the May forecast. This should not be too surprising as the export forecast is highly dependent on how large (or small) Brazil’s safrinha corn crop turns out to be. June-August corn exports for Brazil during this same 5-year period have ranged from a low of around 145-150 mbu in both the summer of 2015 and 2016 to a high of nearly 575 million last year and hence, the reason the USDA’s May export forecast came in 235 million below expectations.
What about livestock?
Although the livestock sector is still looking at both record animal numbers and corn feed/residual use this year (19-20), USDA did reduce the Grain Consuming Animal Units total by a little over 1% to 102.0 million units in the May WASDE report. This came as the result of a scaling back in the hog and poultry sectors as producers responded to reduced meatpacking plant operating hours.
Surprisingly, USDA maintained its Cattle on Feed GCAU estimate at 22.48 million units and Dairy at 10.59 million as it apparently does not think that demand destruction is taking place in those two sectors. Additionally, reduced ethanol production has in turn meant a decline in the production of DDGs and Corn Gluten Feed. And, therefore, more corn utilization directly for feed purposes.
Although USDA does not publish data on domestic consumption of these two by-products, some private sources are expecting about 8-9% less use this year.
At the same time these sources have increased their estimate of the amount of corn consumed by 8% between September and the most recent estimate in May. During this same time period, USDA feed/residual consumption estimate has increased by 525 million, or up 10% since last September.
The June 1 stocks report will be a critical element in determining if feed use is on track with the USDA forecast.
Ethanol declines, but how much?
The latest forecast for corn and milo used in FSI/Ethanol production calls for a 428 (corn)/36 mbu (milo) decline from the 18-19 level of 5.484 billion, to 5.020 bbu this year (19-20). Weekly ethanol production data released by the EIA suggests corn (and milo) consumption after 38 weeks in the marketing year is off about 350 million.
Should ethanol production continue at its latest weekly pace (as of May 22nd), combined demand for the two commodities is likely to close out the year some 831 million less than a year ago. Much depends on how quickly the transportation sector recovers from the effects of COVID-19 and gasoline demand returns to pre-virus levels.
Exports forecast down
Finally, corn export demand is currently forecast by the USDA at 1.775 billion bushels, a decline of 290 million bushels from the 18-19 level. Inspections data through May 21st indicated corn exports were down 29% at 1.077 billion bu. versus a year ago. Balance of the year shipments need to average about 50 per week to keep pace with the USDA forecast. Unshipped sales through May 21st on the other hand, are up nearly 140 million at 479 and support USDA’s export forecast. However, shipments for the summer quarter need to total around 580 million, or a year to year increase of 240, to reach USDA’s 1.775 bbu annual estimate.
Three markets critical to reaching that forecast are Japan, Mexico, and China.
Japan has an unshipped book which is up 50% versus a year ago; Mexican demand has been somewhat sluggish all year along and unshipped sales to this destination are unchanged at approximately 130 million.
Finally, it appears that nearly 2 MMT of Chinese buying is needed to reach USDA’s forecast, but the 42 million in unshipped sales along with 30 million in new buying both appear in jeopardy as political tensions between Washington and Beijing appear to be escalating.
The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.