When the USDA lowered planted corn acreage at the end of June down to 92 million acres versus previous expectations of 97 million acres, it seemed that corn futures prices had found firm footing. It felt like an overly bearish price forecast could be thrown out the window.
Unfortunately, corn futures received a sucker punch this week when preliminary yield estimates were released by various private forecasters, including Farm Futures (here).
With a lack of a stressful summer weather event, trade is now anticipating record or near record yield for corn, putting total production close to 15 billion bushels.
The reality of the crop potentially being near 15 billion bushels in total production means that new crop ending stocks are again burdensome as they may inch closer to that 3 billion bushel mark.
While export demand has picked up and been impressive, the notion of a 15 billion bushel crop overshadows all at the moment.
Ethanol demand improves
While demand for ethanol has improved since spring, demand could diminish as summer comes to a close and summer road trips are ending. With some schools opting for at-home learning, and businesses allowing parents to work at home to coincide with children’s school schedules, there will be fewer vehicles on the road as the school year begins.
Weekly U.S. ethanol production was down from last week and last year. Ethanol production in the U.S. dropped 27,000 barrels per day to 931,000 barrels per day. This is down 10.5% from the same time last year.
Meanwhile, ethanol inventory in the U.S. rose 74,000 barrels to 20.35 million barrels.
USDA report impact
Next Wednesday we will receive the next Supply and Demand report from the USDA. This report will likely show the already anticipated yield increase. What the trade will be eager to see is the old crop corn demand for exports and ethanol. Will those demand numbers be revised lower?
If those demand numbers are revised lower, then old crop carryout will increase, which will then become a larger new crop carry-in. That, plus a 15 billion bushel production number, will seal the fate for a near 3 billion bushel carryout.
A number of this magnitude could pave the way for sub $3 corn futures prices, if realized.
Adding to the negativity is the seasonal tendency for corn futures prices to drift lower throughout the month of August. The seasonal reality is usually two fold; the crop is “made,” and old crop is getting moved out of farmer’s bins to make room for new crop. Many times this price drop lasts until “first notice day” for September corn futures, which is on Monday, August 31.
The reality: stay defensive on your marketing for now. As of this moment there are few glimmers of hope. The one bright spot continues to be the dropping value of the U.S. dollar. If this continues, this will help exports in the future.
Lord knows we will have plenty of corn to sell to the world.