CHAMPAIGN, Ill. — The most recent corn planted acres data provided some market relief after the bearish projection in late March.
The 92 million acres of corn now in the U.S. Department of Agriculture’s balance sheet is 5 million less than the early spring planting intentions had indicated. This year’s corn acreage is up 2.3 million from 2019, primarily a reflection of prevent plant.
Todd Hubbs, University of Illinois agricultural economist, said in a recent webinar that when the June acreage report came out there was still 2.4 million acres that survey respondents said they were going to plant. That may not have gone as planned.
“I would not be surprised if we saw another half million to 750,000 acres come out of corn, either via prevent plant or crop switching. We’ll find out more in the August production report,” Hubbs said.
“That 92 million planted acres forecast was a relief. If we had planted 97 million acres, we would all have been struggling to touch $3 per bushel corn. Now we’re not in that position, but it’s not like it’s roses and sunshine out there with corn prices.”
Hubbs went through the corn supply and demand expectations as they stood in late July.
Average Yield
The USDA currently has the nation’s yield average at 178.5 bushels per acre. The trend line yield for 2020 is 177.3.
Hubbs has raised his projected yield to the USDA’s estimate with the potential that it could go even higher.
“The corn crop looks very good in Illinois. Yes, there are areas we have seen some hail damage that came through. There are little areas out in western Iowa and some areas in the eastern Corn Belt that may be under pressure. But I think a lot of that corn that got planted in a timely manner and deep in pollination is looking pretty good. We can very easily see yield bust through USDA’s current yield projection,” Hubbs said.
Ethanol
About 40% of U.S.-grown corn produced is used for ethanol production. USDA projects 5.2 billion bushels of corn for ethanol in 2020-2021, 3% below what has typically been seen.
“When you think about what kind of ethanol use we have, I think about 5.375 billion bushels is a placeholder for consumption and decent exports in a marketing year. If we have stronger exports, it’ll go higher. If we have stronger gas use, it’ll go a little bit higher. I think it’s sort of the median,” Hubbs explained.
“Right now we’re still about 10% to 11% below normal gas consumption and ethanol production, and I don’t see that picking up in the near term.”
The ethanol industry took a major hit when the coronavirus lockdown was put in place. Weekly gasoline demand increased, but has since flatlined when COVID-19 issues increased in southern and western states.
“Some of those states are huge gas users. Texas, California, Florida have massive populations. I think weekly gas consumption is probably going to stay sideways for a while. I’d like to see it pick up a little more, I’m just not sure it’s going and basically ethanol production will follow this with a little bit of lag,” Hubbs noted.
“We’ve seen ethanol stocks come back down to reasonable levels and production around 930,000 barrels a day. It’s still well below what we would normally do during this peak driving season. I would like to see this carry on and get upwards of 980,000 to 1 million barrels a day.”
There has been an uptick of exports of ethanol that’s not for gasoline fuel consumption.
“I guess it’s for hand sanitizers and things like that have taken off, but we’re talking the difference between 8 million and 9 million more bushels of corn versus 150 million we lost for fuel use. So, while there’s a positive there in the industrial uses they’re not going to make up for this problem,” Hubbs added.
Exports
Mexico, Japan, South Korea, and Colombia continue to be the biggest markets for U.S. corn. China has purchased almost 100 million bushels of corn for the 2020-2021 marketing year which does put USDA’s 2.15 billion bushels projection for exports in place.
“We could see China get up around 270 million, 280 million bushels. We could possibly eclipse that,” Hubbs said.
“We’ve seen small growth in Mexico over the years. Japan, South Korea and Colombia are basically stable. We tend to send most of our corn in consistent amounts to our main suppliers year over year. We do get people coming in and out and if Brazil shorts their crop a little bit we’ll see stronger exports to the rest of the world, particularly in South America and parts of Asia.
“If we can see China continue to buy corn at the pace we’ve seen, it does put 2.15 billion bushels of exports in play, and with the lower prices we’re going to see, we could see demand out of Mexico, Japan and all of our major buyers spurred a little bit.”
Feed Demand
USDA’s projects feed and residual use for the current marketing year at 5.6 billion bushels and Hubbs believes the number will be close.
“We have seen the slaughter facilities open up and a lot of throughput in meat production over the last few weeks where we’re back to where we were last year and slightly above in some weeks. We’re starting to see the hogs and cattle move through the system,” he said.
“Hopefully here in the fourth quarter we’ll see a little bit stronger feed and residual use than we normally do, but I think that 5.6 billion bushels is probably about right if not a little high. Next year we have it set at 5.85 billion bushels. It does feel like we’ll have a decent herd, but will it be higher than this year? I’m not sure it will be. We do see a lot of hogs coming in the supply chain right now, but when we get into the fourth of this year and the first quarter of next year we’ll see what kind of production numbers in hogs and in cattle.”
Prices
The corn stocks-to-use ratios have been building year over year for the last four years. The prices reflected that and are down in the $3.30 to $3.50 per bushel range.
“We could see it go lower this year and what we see in cash prices right now, that is the case. It’s the production potential that we’re portraying right now for prices,” Hubbs said.
“I have the price at about $3.25 per bushel season average price. I think there are going to be places in the western Corn Belt that will have a tough time busting $3 if this crop comes in like I think it does. For us in Illinois, we’ll be at the $3.25 per bushel season average price and maybe slightly lower. Our corn price in Illinois tends to track the seasonal average price much closer.”
Marketing
Hubbs anticipates sideways patterns in the nearby futures for old crops as folks try to wrap their minds around where the crop will be.
“I’m worried and concerned about what that yield will be in the August crop production report,” he added.
Basis in the old crops is minus-8 to minus-10 in central Illinois, depending on location and Hubbs thinks that will remain relatively stable.
“If you still have corn out there and you’re looking to move it, I’m not sure basis contracts are where you need to be. I think it will stay pretty stable as we move forward. Futures prices are sideways, slightly lower, so think about that if you’re going to sell corn over the near term,” he said.
For new crop expectations, Hubbs thinks futures are “basically where we are at.”
“We could see them coming down a little bit more. We’re a little above $3.30. When the December corn price hit $3.60 in early July that was a pricing opportunity. Given the size of the crop we’re probably going to put out, the lower acreage and the weather issues drove it up above $3.60,” he said.
“Now we’re back down in the $3.30 range. Hopefully you priced some of the corn in that period of time. I think we may be a little bit sideways. You may see December prices moving to the mid to low $3.20s before it’s all said and done with the basis relatively stable as we get into harvest time.”
August 19, 2020 at 07:04AM
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Corn acreage up 2.3 million from 2019: Focus turns to August projections - Agri News
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