U.S. Corn Prices Weaken on Higher Output, Lower Demand: Report

Source: By Jeff Barber, OPIS • Posted: Thursday, July 7, 2016

U.S. corn producers may be looking at another year of low prices and negative returns on higher-than-expected stocks and lower demand from the feed and ethanol sectors, the University of Illinois’ Department of Agriculture and Consumer Economics said Tuesday.

In the department’s Farmdoc Daily weekly outlook, Professor Emeritus Darrel Good said that after rising by 80cts/bushel from April 1 to June 17 on a shortfall in Brazil’s corn crop and expectations that the planted acreage of U.S. corn would be below intentions reported in March, the December 2016 corn futures contract has fallen by 95 cents and is “currently trading at contract lows.”

Good attributed the contract’s decline to a number of factors, including more favorable weather and last week’s USDA report that showed a larger-than-expected estimate of planted corn acreage. USDA estimated June 1 corn stocks at 4.722 billion bushels, about 195 million bushels higher than the average trade guess, he said.

The stocks estimate, Good added, “implied a surprising slow pace of feed and residual use of corn during the third quarter. The U.S. corn marketing year runĀ from Sept. 1 through Aug. 31.

Demand from the ethanol sector is also down, he said. While corn used for ethanol production during the first half of the current corn marketing year exceeded that of the same time last year by 1.7%, Good said use during the third quarter of this marketing year was 3.3% below last year’s number.

“The slower pace of corn crush reflects a slowdown in the pace of ethanol production and the use of more sorghum for ethanol production. Ethanol production in the first seven months of the current corn marketing year exceeded that of last year by 3.6%,” Good said.

But ethanol output in April was only 0.5% above April 2015’s level and weekly estimates for May and June “point to a year-over-year increase of less than 1% for those two months. Sorghum use for ethanol production during the first seven months of the marketing year is estimated at 107 million bushels, compared to 17 million bushels in the same period last year.”

Good said corn used for ethanol and co-product production in the first three quarters of the current marketing year totaled 3.865 billion bushels. “To reach the USDA projection of 5.25 billion bushels for the year, use during the last quarter will need to total 1.385 billion bushels, 50 million bushels (3.7%) more than used last year.

And if sorghum use remains high this summer, then corn used for ethanol could fall at least 50 million bushels below the USDA projection, Good added.

The one bright spot for the corn industry, he said, is the export market. USDA is projecting 2015-16 marketing year exports at 1.825 billion bushels and to reach that projection, exports will need to average 44.8 million bushels/week during the less than nine weeks remaining in the marketing year. Export inspections, Good said, averaged 47.2 million bushels/week for the 10 weeks that ended on June 30, adding that “it appears that exports could exceed the USDA projection by about 25 million bushels.”

Given the low corn prices, Good said producers “will need to continue to look for ways to reduce production costs” and said some reduction in world corn production may be required to move prices back into the black. “With prospects for increased acreage in Argentina, Brazil and South Africa in 2017, the reduction may fall to the U.S.,” he said.