Good: Price pattern for corn? Going sideways
URBANA, Ill. (University of Illinois) – The corn market was relatively uneventful during the first two months of the 2015-16 marketing year.
There were no large supply surprises, and known consumption was somewhat lackluster.
As a result, corn prices traded in a choppy, but mostly sideways pattern, said Darrell Good, a University of Illinois agricultural economist.
“Although market expectations about the magnitude of the U.S. average corn yield and size of the crop have varied over the past three months,” Good said, “USDA forecasts have been stable.
“USDA’s 2015 yield forecast has changed very little from the initial forecast of 168.8 bushels in August, dropping to 167.5 bushels in September, and rebounding to 168 bushels in October.
“The production forecast declined by only 131 million bushels, slightly less than 1 percent, from August to October.
“In addition, the Sept. 1 stocks estimate of old-crop corn came in almost exactly as forecast. New yield and production forecasts will be released on Tuesday.
“Changes from the October forecasts are expected to be modest.”
According to Good, corn export inspections and export sales so far in the 2015-16 marketing year have been disappointing.
For the year, USDA projects that exports will reach 1.85 billion bushels, only slightly less than exports of 1.864 bb last year.
Cumulative export inspections during the first two months of the year were reported at only 206 million bushels, compared to 270 mb during the same period last year.
Export commitments for the year (shipments plus outstanding sales) as of Oct. 22 were reported at 496 mb, compared to commitments of 738 mb on the same date last year.
Commitments to Japan, typically the largest importer of U.S. corn, are down 42 percent, while commitments to Mexico, typically the second largest importer, are up 4 percent year over year.
“The seasonal pattern of exports and export sales differs from year to year,” Good said, “particularly sales to Japan, so early export performance is not always a good indicator of marketing-year exports.
“In addition, the official Census Bureau estimates of monthly exports (not yet available for September or October) often deviate from the export inspection estimates.
“Still, the slow start to the 2015-16 export program and prospects for ongoing competition from Brazilian exports due to large supplies and favorable exchange rates raise concerns that marketing-year exports will fall short of the current projection.
“Reports last week that some Brazilian corn was headed to the United States did not improve the U.S. export outlook.”
USDA was scheduled to release the estimate of the amount of corn used for ethanol production during September on Monday.
Weekly estimates of ethanol production from the U.S. Energy Information Administration indicated that domestic ethanol production in September and the first three weeks of October exceeded that of a year ago by nearly 5 percent, suggesting corn consumption was also up about 5 percent, Good said.
“Ethanol production and corn consumption will continue to be supported by increasing domestic gasoline consumption and robust exports,” Good said, “but the large year-over-year increase in ethanol production experienced so far this year will not persist.
“Weekly ethanol production accelerated about this time last year. Production during the third week of October this year, for example, was about equal to that of a year ago.
“For the year, the USDA projects the amount of corn used for ethanol and co-product production at 5.25 billion bushels, about 1 percent more than consumed last year.
“Use may exceed that projection, but probably not by enough to alter the prospects for abundant year-ending corn stocks.”
The EPA’s final rule making for the Renewable Fuel Standards for 2014, 2015 and 2016, expected by the end of the month, will provide more insight on ethanol production prospects, he said.
USDA projects feed and residual use of corn during the current marketing year at 5.275 bb, only slightly less than used last year.
Good said the pace of consumption will not be known until USDA releases the estimate on Dec. 1 corn stocks in the second week of January 2016.
In the meantime, prospects for feed consumption are derived primarily from changes in livestock and poultry inventories and production intentions.
“Current inventories provide a bit of a mixed picture,” Good said. “The milk cow inventory in September was 1 percent larger than the inventory of a year ago, the number of cattle on feed on Oct. 1 was up 2 percent, and the Sept. 1 inventory of market hogs was up 4 percent.
“In contrast, the layer flock is recovering slowly from the effects of bird flu, and the September inventory was down 8 percent year over year.
“In addition, weekly broiler chick placements were less than those of a year ago in five of the seven weeks that ended Oct. 24.
Although the Dec. 1 corn stocks estimate could provide a surprise because it will reflect residual use of corn as well as feed use, current livestock numbers suggest that feed use should be near that of last year.”
According to Good, March 2016 corn futures have traded in a sideways pattern, with a range of about 95 cents over the past year, about 40 cents over the past four months, and about 15 cents over the past three weeks.
“The current price is near the low end of that range,” he said. “A broad sideways price pattern is expected to continue through the winter months.
“A test of the high side of the price range will likely require a threat on the supply side, either in South America this year or the U.S. next year.”
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