Column: Familiar storyline in the cards for U.S. corn as focus turns to 2021-22

Source: By Karen Braun, Reuters • Posted: Wednesday, April 14, 2021

FORT COLLINS, Colo. (Reuters) – Market-watchers next month will be engulfed in next year’s supply and demand prospects as U.S. farmers seed the 2021 corn crop and the U.S. government publishes its first official estimates for 2021-22, numbers that are expected to show continued tightness in domestic corn inventory.

The U.S. Department of Agriculture’s updated estimates on Friday dropped 2020-21 U.S. corn stocks-to-use to 9.2%, both equal to and the lowest since 2013-14. That ratio, which gauges both supply and demand, was seen at 10.3% last month.

USDA each May publishes its first official figures for the upcoming marketing year that starts on Sept. 1, though the old-crop balance sheets are still several months from final form and cannot be ignored. Supply concerns for next year already exist as planting intentions for U.S. corn last month came in well below expectations.

The agency in February made an unofficial first pass at the 2021-22 U.S. balance sheets, where corn carryout was predicted to be nearly identical to this year, a historically rare trend. New-crop corn carryout came in more than 18% above or below the old-crop stocks in eight of the last 10 Mays.

This potentially prolongs the supply uncertainty and complicates the valuation of corn futures on the Chicago Board of Trade, especially in the deferred months. December corn hit a contract high on Tuesday of $5.05-3/4 per bushel and is up 16% so far this calendar year.

NEW BALANCE SHEET

USDA in February tentatively placed 2021-22 U.S. corn ending stocks at 1.552 billion bushels, assuming 2021 planted acres at 92 million and 2020-21 ending stocks of 1.502 billion bushels.

Last month, U.S. farmers reported they would plant only 91.1 million corn acres and on Friday, this year’s ending stock estimate was whittled to 1.352 billion bushels.

If everything else was unchanged on USDA’s 2021-22 balance sheet from this year’s outlook forum, replacing the acres and beginning stocks puts next year’s carryout at about 1.14 billion bushels, which would be a nine-year low.

However, demand often eases when supplies shrink. U.S. corn exports this year are set for new records this year and the market believes Chinese demand will keep shipments elevated into next year, so possible demand cuts may instead come from domestic use.

The agency in February pegged corn use for ethanol at 5.2 billion bushels in 2021-22, already below the typical pre-COVID levels, leaving little room for further cuts. Feed and residual use was set at 5.85 billion bushels and exports at 2.65 billion.

As of last week, USDA’s 2020-21 assumptions are ethanol at 4.975 billion bushels, feed and residual at 5.7 billion and exports at 2.675 billion. Those are up a respective 25 million, 50 million and 75 million bushels from the February numbers.

Corn supply and demand trends at this time of year unfolded similarly in 2018 since intended acres that year came in lower than expected and the old-crop carryout was also falling, partially driven by stronger exports.

USDA in May 2018 set 2018-19 domestic corn use just 130 million bushels below the February outlook, setting up carryout for a five-year low. But supplies ended up much larger as demand was initially overstated despite a better-than-expected harvest.

FEED AND RESIDUAL ROLLERCOASTER

Feed and residual corn usage has become a wild card due to its nontransparent nature and increasing unpredictability. Many market participants believe that might stem from a USDA crop miss in 2019, causing volatile quarterly stock reports, but it is just a theory and the specifics are debatable.

Feed and residual accounts for about 38% of annual U.S. corn use, so fluctuations in that number can greatly shift supplies. In 2019-20, total U.S. corn usage fell 2% on the year to a four-year low after the crop came up short, but feed and residual rose 9% to a 14-year high, baffling analysts.

CBOT corn is roughly $2.60 per bushel (81%) more expensive than in May 2020 when 2020-21 feed and residual was originally projected at a 15-year top of 6.05 billion bushels. The current assumption of 5.7 billion is down 3% on the year but is otherwise comfortably the second-highest since 2007-08.

That means higher prices and thin supplies might not be predictive at all of USDA’s looming forecast for next year’s feed and residual, increasing the chances that the starting 2021-22 balance sheet varies vastly from market expectations.

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