The Acreage and Grain Stocks reports released June 30 produced some surprises for the corn market. The decrease in acreage spurred a rally in corn prices and injected some optimism into the corn outlook moving into the 2020 marketing year. The market turns to weather forecasts and the upcoming World Agricultural Supply and Demand Estimates report for price formation during the short term.
Corn producers reported they planted or intended to plant 92.01 million acres of corn this year, 2.31 million more than planted in 2019. Corn-planted acres came in 3.2 million acres fewer than the average trade guess and 4.98 million acres fewer than March planting intentions.
Compared to March planting intentions in major producing states, the June survey revealed reduced corn acres in all states. In particular the western Corn Belt saw substantial acreage reductions. The eastern Corn Belt saw 1 million acres of corn removed from March intentions.
North Dakota reduced by 800,000 acres.
South Dakota reduced by 600,000 acres.
Nebraska reduced by 700,000 acres.
Illinois reduced by 400,000 acres.
Indiana reduced by 400,000 acres.
The 5-million-decrease in corn acres didn’t move into other principal crops. It hints at expanded prevent-plant acreage for corn this year. Producer intentions to plant principal crop acreage show a 9.3-million-acre increase from 2019. The U.S. Department of Agriculture estimates acreage planted to principal crops will total 311.9 million acres. The planned increase in total planted acreage from a year ago came from increases in feed grains and soybeans.
Sorghum acreage came in 355,000 acres more than a year ago, at 5.62 million acres. Barley increased by 76,000 acres and oats increased by 324,000 acres. Soybean planting intentions indicated farmers plan to plant 83.8 million acres of soybeans, an increase of 7.7 million acres from 2019. The soybean acreage came in at the low end of market expectations.
An additional 2.24 million acres of corn remain unplanted at the time of the survey. That brings into question whether those acres may be put in alternative crops or left unplanted. The surprise in corn-planted acreage led to a strong rally in corn prices. The market’s focus now turns to demand and weather.
The acreage report revealed a positive surprise for corn prices but the June 1 stocks report came in much more than expected. June 1 corn stocks came in at 5.224 billion bushels, slightly more than the previous year and about 273 million bushels larger than the average trade guess. The greater-than-expected stocks total revealed a reduced level of feed use in the third quarter of the marketing year. Feed and residual use during the first three quarters of the marketing year sits at 4.729 billion bushels.
To reach the projected 5.7 billion bushels of corn, the USDA estimate for feed and residual during this marketing year, feed and residual use in the fourth quarter must equal 971 million bushels. Fourth-quarter feed and residual use has not equaled that level since the 2005-2006 marketing year. Based on the current stocks estimate, it appears feed and residual use this year may not reach the projection of 5.7 billion bushels. We may see the USDA reduce the estimate in the next World Agricultural Supply and Demand Estimates report when it’s released July 10.
A reduced feed and residual amount points toward a larger carry-out into the next marketing year. The potential for the current marketing-year ending stocks eclipsing 2.2 billion bushels, while not sure, looks likely.
Ethanol production continues to recover from the weakness seen in April and May. Corn use for ethanol in the third quarter totaled 955 million bushels, a decrease of 387 million bushels from the third quarter of the previous marketing year. For the week ending June 26, ethanol production came in at 900,000 barrels a day. That’s an increase of almost 18 percent from a month ago.
The recent increase in COVID-19 cases and subsequent policies enacted around the country to fight the spread insert a considerable level of uncertainty into ethanol-use projections. Corn use for ethanol may flatten as the virus’s resurgence mitigates economic activity during the peak driving season – and may carry into the next marketing year. An expectation of the USDA reducing corn use for ethanol by 50 million bushels in the next World Agricultural Supply and Demand Estimates report seems reasonable.
Corn exports appear on track to hit the USDA estimate of 1.775 billion bushels for the current marketing year. Outstanding sales as of June 25 sit at 332 million bushels. Exports through June 25 for the marketing year total almost 1.38 billion bushels. The export pace sits slightly less than the USDA estimate, but some light Chinese buying and strong domestic prices in Brazil hold positives for corn exports. Increased corn prices and the potential for slow global growth may prevent an acceleration of exports as the calendar moves into the next marketing year.
A higher carry out, despite reduced acreage, places an added emphasis on yield potential. Some dryness in major corn-producing areas looks feasible in the near term. The recent drought monitor showed areas in North Dakota, Illinois and Indiana poised to come under stress if dryness continues. The overall impact on the crop is challenging to predict now. An extended dry period as the early-planted crop moves into pollination will reduce corn yields. The projection for harvested corn acres sits at 84 million acres, 2.7 million more than harvested in 2019. If the USDA’s yield projection of 178.5 comes to fruition, corn production comes in at about 15 billion bushels with present acreage intentions – an increase of about 1.37 billion bushels from 2019.
Corn prices already reflect reduced acreage and weaker demand. Subsequent rallies in corn prices rely on the weather. The prospect of the market building a weather premium seems likely during the next week given the current weather forecast.