By Alan Brugler
DTN Contributing Analyst
The USDA Grain Stocks report Friday showed Sept. 1 corn stocks of 1.738 billion bushels. That was less than 7 million bushels larger than the Sept. 30 report in 2015. The good news is that stocks didn't get much larger -- but they also failed to shrink. As a reminder, they were only 1.236 bb in 2014 and 821 mb in September 2013. The corn stocks figure was below the average trade estimate for the fourth time in the past 10 years, which is also a positive. The market had sold off coming into the report, so the slightly bullish number allowed a rally on Friday and a net change of only 1/4 cent for last week.
There are some things we want to look at within the corn data that might color our perception of what comes next for corn basis and prices. We know there is excellent export demand, requiring a lot of bushels to leave the farm as soon as possible and head to the Gulf, the Pacific Northwest or Mexico. U.S. new-crop export sales commitments are 76% larger than last year at this time, with 14.5 million metric tons (571 mb) on the books and not shipped! Where will that corn originate?
The Sept. 1 on-farm stocks were estimated at 627.4 mb, up 34.4 mb from the 593 mb last year. Using the current 86.55 million harvested acres from the September crop report, it would take less than a 0.5 bushel per acre reduction in USDA expected yield to offset those additional bushels. We would note that off-farm corn stocks on Sept. 1 at 1.11 bb were actually down from the 1.138 billion held in that position a year ago.
There are some interesting things going on within the different growing areas. Take the Eastern Corn Belt for example, which we define as Ohio, Indiana and Illinois. The first table shows Sept. 1 corn stocks, estimated production from the September Crop Production report and the total supply available in that region.
| 2010/11 | 2011/12 | 2012/13 | 2013/14 | 2014/15 | '2015/16 | '2016/17 |
| | |
| Stocks | 377 | 253 | 265 | 192 | 244 | 480 | 382 |
| | |
| Production | 3378 | 3273 | 2332 | 3798 | 4045 | 3333 | 3871 |
| Tot Supply | 3755 | 3526 | 2598 | 3990 | 4290 | 3813 | 4253 |
Last year, we were talking about a huge increase of 235 mb in regional stocks, and the biggest carryover for those three states since 2005-06. The problem was all Illinois, where the Sept. 1 old-crop corn pile was 71% larger than the previous year, following a record 2014 yield there. This year, beginning stocks for the three-state area are 98 mb smaller, but the crop outlook is better than last year. Using USDA Sept. 12 acreage and yield assumptions, there would be 538 million MORE bushels of new-crop corn available in those states this fall than last year. Total supply to start the year would be similar to 2014, which was the largest in history for the region. Coincidentally, Illinois yields were record large in 2014, and USDA is looking for them to match 2014 this year. The outlook for cash corn basis is soft with that level of supply, but consumption can be strong as was shown in 2014-15 with September-October-November disappearance of 981 mb. It was only 786 mb last year.
I need to insert a warning here. USDA will incorporate Farm Service Agency acreage changes into their October crop production report, which could alter that middle line in the chart. There are also still concerns about grain weight per ear being record high, and concerns about both ear losses from diplodia and quality issues due to excess rain. The final number could go either way (acreage up, yield down anyone?), but we clearly have a large corn supply in the Eastern Corn Belt to start the year.
What about the Western Corn Belt? The Sept. 1 corn stocks are larger by 76 mb for the five Western Corn Belt states of Iowa, Minnesota, Missouri, Nebraska and Kansas. They were down 98 mb in the Eastern Corn Belt states, so on balance, these eight key producers had less corn sitting around on Sept. 1. The five-state Western Corn Belt production is also expected to be up a major 495 mb in 2016 vs. 2015, just a little less than the 538 mb gain expected in the smaller (geographically) Eastern Corn Belt.
| WCB Corn | | |
| 11/12 | 12/13 | 13/14 | 14/15 | '15/16 | '16/17 |
| | | |
| Stocks | 605 | 498 | 428 | 636 | 869 | 945 |
| Production | 5892.08 | 5166.3 | 5987.61 | 6342.13 | 6645 | 7140 |
| Tot. Supply | 6497 | 5664 | 6416 | 6978 | 7514 | 8085 |
The use story for the Western Corn Belt states was stellar this summer, at 1.497 bb. With no porcine epidemic diarrhea virus or Highly Pathogenic Avian Influenza outbreak to impede livestock consumption, and a strong export program, that was a new record for summer quarter off-take. The record for September-November was set last year at 1.945 bb and the stars appear to be lined up for a 2 bb quarter unless wheat feeding turns out to be a lot stronger than it was in June through August.
So what does this all mean? Corn supplies were comfortable to start the marketing year. There were a few less off-farm bushels available to ship, but the total was still over 1.1 bb. Traders have little necessity to bid aggressively for corn nationally in the face of comfortable stocks and a record crop standing in the field. That said, cash corn prices nationally are 53 cents per bushel lower than last year at this time. Producers are very reluctant sellers at this price level, and have made enough soybean forward sales to provide cash flow. National basis on average hits the annual bottom between Oct. 4 to Oct. 8 for corn and then climbs into mid-December. That may be needed again in 2016 to get these bushels to move into commercial channels.
Alan Brugler may be contacted at alanb@bruglermktg.com
(CZ/BAS)
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