Corn Outlook – Updated 7-20-21

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Format for Today’s Special Corn Outlook

2020-21 Corn Demand Outlook

Demand for U.S. Corn 2020-21

This diagram shows that feed and residual is the largest use for U.S. corn. Ethanol is a close 2nd while exports are a distant third with and then food and industrial use less than 10% of total corn use in the U.S. Just a fraction of the U.S. corn crop goes back into seed.

Potential Feed Demand

Weekly U.S. Ethanol Production

The 2nd largest demand category in the U.S. is corn use for ethanol. Coronavirus and the pandemic caused ethanol production to drop by nearly 50% in early 2020 as lockdowns and lack of driving and transporting along with commuting to work and school caused our fuel consumption to drop dramatically and therefore ethanol production was reduced as well. As of the last month or two, ethanol production has ramped back up to the pre-covid era and solid demand from ethanol is expected going forward. It’s worth noting that USDA is projecting the U.S. will use over 5 bb of corn ethanol. That’s about a third of all the corn produced in the U.S.

U.S. Corn Exports

China became a big buyer of U.S. corn this year and that has pushed our exports to new records at 2.850 bb of corn that will be exported from the U.S. prior to the end of August.

Total U.S. Corn Use

Solid feed demand, solid ethanol demand, and record exports resulting in an all-time record amount of corn use in the U.S. estimated this year as just of 15 bb.

U.S. Corn Supply & Demand

U.S. Corn Stocks and S/U

This chart shows the monthly ending stocks from USDA. On the right is the stocks to use. Just a little over a year ago in May and June of last year, USDA was projecting we’d have over 3 bb of stocks this year but a combination of lower production and tremendous demand, out stocks now at 1.082 bb. Very tight, near minimum pipeline levels. Until this year, the lowest stocks we’ve seen over the previous 6 years is about 1.55bb for any given month. This year at 1.082 bb exceptionally tight. Next year USDA is projecting 1.432 bb. That is an increase from this year but we believe very strong demand is going to chip away at that and by the time we get into the Jan, Feb, Mar, and Apr timeframe our stocks next year could be just as tight as they are this year. Stocks to use at 7.2% is much tighter than we’ve been at any time over the past 7 years. Next year, even though USDA is projecting it to be a little bit higher but still exceptionally tight. Again we think this number will work down towards a similar level as our current level by the time we get to late winter or early spring.

U.S. Corn Ending Stocks

Looking at ending stocks over the last 18-20 years, this year’s stocks at 1.082 bb. That’s very close to some of the lowest numbers we’ve had over the past 18-20 years. And when we include the fact that our demand is much larger than it was years ago, stocks to use are near record low. It’s these tight stocks and extremely tight stocks to use ratio that resulted in old crop corn going over $7/bu earlier this summer.

2021-22 U.S. Corn Outlook

U.S. Planted Acres

This year corn acres were up to 92.6 mil acres, beans up to 87.5 mil acres and wheat up to 46.7 mil acres. Significant increase in corn, beans, and wheat acres this year.

U.S. Planted Acres Combined

Combining corn, beans, and wheat we get 227 mil acres. That’s very near the levels we saw in the 2012-18 timeframe before we and tremendous prevented plant in 2019 and 2020.You may think our acreage could have been even higher but keep in mind urban sprawl accounts for at least 0.5 mil acres of prime growing acres per year. Therefore, over the past 8 years we’ve likely lost about 4 mil acres of prime crop ground. When we look at the difference between this year at 227 mil and last year at 218 mil, that’s an increase of 8.7 mil acres.  Where did those acres come from?

U.S. Prevented Plant Acres

The biggest item is prevented plant. Corn, beans, and wheat prevented plant was 8.9 mil acres. We’re projecting it could be 2.4 mil acres this year. That’s an increase of 6.5 mil acres. That’s the lion’s share of the acres we gained in the spring planting season.

CRP Acres

We also gained a million acres coming out of CRP. Last year CRP was 21.9 mil acres. This year the CRP acres were 20.8 mil acres. Less acres in CRP means more acres getting planted to crops. The combination of acres that did not go to prevented plant this year combined with some acres that came out of CRP accounts for the vast majority of this year’s increase in acreage.

Double Crop Soybean Acres %

Another thing that can cause an increase in acres is double plant soybeans because you don’t need additional land, you just plant the same ground twice. High prices during the spring planting season in late April, soybeans were averaging about $13.41/bu versus the previous 2 years at $8.50-$9.00/bu. We felt that double crop bean acres could have increased significantly by maybe 3 mil acres this year but in the acreage report produced on June 30th, USDA said that double crop soybeans were 5% of the total, the same as last year. That was somewhat of a surprise to use but nonetheless that was USDA’s number that was reported in late June. One piece of the supply puzzle is acreage. The other piece is of the supply puzzle is final yield and that is primarily determined by weather.  

Weather

This year we have severe dryness in the northwestern belt and northern Plains while flooding is taking place in MO, IL, and even portions of IN and MI.

Calculated Soil Moisture Anomaly

Our soil moisture anomaly, soil moisture compared to average, shows very large soil moisture deficit in the northwestern belt and northern Plains. While soil moisture surpluses in MO and IL where they are having issues with flooding.

90-Day Precipitation vs Average

This year’s growing season has been marked by extreme dryness in portions of the western, northwestern, and northern Plains. This map shows the 90 day precipitation compared to average. If you draw a line from Chicago to KC, north and west of that line we’ve seen significant dryness. Severe drought in the Dakota’s and portions of MN already causing severe stress and limiting yield potential. IA, although they’ve had less than normal rain, they’ve had some very timely rain that makes IA still somewhat of a question mark as to whether or not they can produce trendline yields. On the other side of that line from Chicago to KC is MO and IL where they’ve had some issues with extreme wetness and flooding for much of the summer.

U.S. Drought Monitor: July 13, 2021

You can see the dryness on the most recent drought monitor. This is data as of July 13th and was released on the 15th. You can see the severe drought conditions in the northern Plains and northwestern Midwest and that extends into the durum and white wheat areas of the Pacific northwestern where the crop is being ravaged by drought conditions and extreme heat. But it’s clear to see that same line, from Chicago to KC south and east of that no issue with a shortage of moisture.

6-10 and 8-14 Day Forecast

As we look at the forecast going ahead, the 6-10 and 8-14 day forecasts show above normal temperatures for the entire U.S. corn and bean belt, all the way through August 2nd. In addition to above normal temperatures during the hottest time of the year, the NWS is also predicting dryness with below normal precipitation for the entire U.S. corn and bean belt over the next two weeks. This combination of above normal temperatures and below normal precipitation needs to be monitored very carefully because there is no room for yield loss in this year’s crop.

U.S. Corn Yield

This chart shows the corn yield over the past 45 years. USDA is projecting corn yield at trend. That’s the dark red line at 179.5 bpa. But that trendline yield would also be an all-time record. The record yield was produced 4 years ago at 176.6 bpa. It’s worth noting on this chart that in 2014, 15, 16, 17, and 18 we had above trend yields 5 years in a row. Now the previous 2 years we had below trend yields and this year, if the weather doesn’t turn much more favorable we could be sitting on a 3rd consecutive year of trendline yield.

USDA Corn Yield Estimate

This chart shows USDA’s yield estimate on a monthly basis therefore if we look at this year, USDA in the March outlook meeting projecting a trendline yield of 179.5 bpa and USDA used that yield in May, June, and July. USDA is still using a trendline yield of 179.5 bpa. USDA rarely changes the yield in July because it’s too early to have a good feel for final yields. Although 2 years ago in 2019 because of extremely late planting and flooding and tremendous prevent plant UDSA did lower the yield in the June report. Bottom line, USDA is projecting a yield of 179.5 bpa. That would be a record. There were a couple occasions that USDA was projecting yields over 180 bpa, 2018 and 2020. If the weather does not turn much more favorable or if the hot dry weather does verify over the next few weeks, it’s possible our yields could be falling in Aug or Sep this year if the weather doesn’t cooperate.

U.S. Corn Production

If we multiply this year’s yield at 179.5 bpa times the harvested areas of 84.5 mil acres, that gives us a production of 15.165 bb. That would be an all-time record large corn crop in the U.S. and yet we’re still going to be on the verge of running out of supply. It’s amazing to think this year’s crop, if the USDA is correct, is a billion bu larger than last years crop and we’re still going to be on the boarder line of running out of corn supplies.

U.S. Corn Supply & Demand

Items that May Influence the Markets

Items that May Influence the Markets Cont.

Daily Case and Daily Deaths of Covid-19

We mentioned that Covid still needs to be monitored. On the left are the global numbers. There’s a new surge in global cases but they’re not as high as previous outbreaks. Good news is that deaths, although they bounced a little bit but are still trendline lower. Even though Covid isn’t over we believe the global economy will be back into a steady growth mode. Here in the U.S. we’re seeing a secondary surge in covid cases and a lot of that is due to the variants like the Delta variant. But we’re still on a fairly steep downtrend on the long haul and deaths in the U.S. continue to work lower which is good news and also evidence that we’re not likely to see a repeat of the coronavirus outbreak that we saw a little over a year ago.

Crude Oil

We mentioned that crude oil prices are likely to remain firm. They’re in a long-term steady uptrend. We have seen a sharp break recently with crude oil falling about $11/barrel over the last couple of weeks but we believe this is just a pullback and the overall long term trend is likely to continue working higher all they way into next year.

U.S. Dollar Index

The U.S. dollar index gives us an idea of how competitive we are from a currency perspective when it comes to grain exports. A low U.S. dollar means our products are relatively cheap for foreign buyers. Now we have rallied over the last month or so but we’re still fairly cheap for the U.S. dollar compared to a year ago. This is overall good news for exports as long the dollar doesn’t continue to rise and we don’t think so with the amount of money being printed in the U.S. Once the Covid variance starts to back off we believe investors will start to gain confidence in other foreign economies and start to invest in foreign currency and that could cause the U.S. dollar to start breaking down in the months to come.

U.S. Soybean Ending Stocks

We mentioned that soybean stocks are extremely tight, this year at 135 mb. That’s near record low and even though we may have been lower in 2014, demand was lower and stocks to use are at a record lower and is going to be just about as low next year. That’s provided we can get trendline yields which is a big question mark at this time. Bottom line, soybeans are going to be a supportive item for corn and not a negative.

U.S. Wheat Ending Stocks

U.S. wheat ending stocks have been falling consistently for the last 5 years but they were still adequate this year at 844 mb. But a devastating drought in the U.S. northern Plains and Pacific northwest has stocks down to 665 mb and that number could still slip lower so wheat could be much more of a supportive item next year.

U.S. Corn Stocks and S/U

Monthly corn ending stocks and again, 1.082 bb projected for this year and 1.432 bb projected for next year with stocks to use at near record tight levels.

U.S. Corn Ending Stocks

On a longer term chart you can see those tight stocks, 1.082 bb and although it may not be the tightest stocks level, it is one of the tightest stocks to use levels we’ve seen over the past 20 years. Next year, USDA projecting an increase in stocks but demand is likely going to eat away at that and we’re likely to end up with something closer to this year. The bottom line is that if demand does in fact chew away at stocks or if U.S. yields cannot reach trendline, we’re looking at a stocks scenario next year that is just as tight as this year

Corn Monthly Chart

Back in the period of Dec 2010 to July 2013 the vast majority of the time prices traded between $6.00-$7.50. We did go above $7.50 a couple of times and peaked below $6 a couple of times, but the majority of the time was spent between $6.00-$7.50. This year we had prices up in the $7.50-$7.75 range due to extremely tight stocks. And if we’re correct that next year we could have stocks just as tight this year, we expect to spend a lot of time between $6-$7 over the next 8-12 months. We do believe the high prices we’ve seen this year are not just a blip on a chart, that we could remain at relatively higher prices for an extended period of time until the marketplace is confident that the U.S. can begin to rebuild stocks and that does not look to happen in the next 6-12 months. With that discussion in mind our current prices as of today, July 20th, at $5.71 for new crop Dec corn we believe that is below what we expect to be traded over the next 6-12 months.

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