Corn Outlook Improved, but Demand Still Uncertain

The USDA may have reduced its 2020 US corn yield forecast, but the potential for weaker than expected demand will likely keep a lid on prices regardless, according to a pair of Purdue University agricultural economists.

In a webinar last week, James Mintert and Michael Langemeier admitted the outlook for corn has brightened considerably over the past number of months but expressed continued doubt about projected 2020-21 exports and more particularly, corn for ethanol use.

In its latest supply-demand outlook, released last week, the USDA cut its 2020 US corn production forecast by 378 million bu from August to 14.9 billion due to a reduction in the average expected yield. And while the government also trimmed its corn for ethanol use by 100 million bu to an estimated 5.1 billion bu that is still up from 4.855 billion a year earlier and is perhaps still too optimistic considering the continued impact of the COVID-19 pandemic on broader fuel demand, they said.

Although US ethanol production has rebounded nicely since the beginning of the pandemic in the late winter/early spring, Mintert noted it has hovered at around 14-15% below pre-COVID levels since about June and has shown no signs it wants to improve further from there.

“I find it difficult to be very optimistic about further increases in ethanol usage for corn,” he said. “My best guess is we’re going to see (ethanol production) stall out in the same range it is now.”

Meanwhile, Mintert said the USDA’s 2020-21 corn export forecast of 2.325 billion bu, up 100 million bu from the August estimate and a major 32% above a year earlier, seems to be heavily predicated on increased meat production in China and the need for more animal feed there. He admitted it is difficult to get a firm handle on Chinese animal production but warned the USDA may be overstating Chinese demand.

“A big chunk (of exports) is one country – China,” he said.

Still, both Mintert and Langemeier agreed the corn market is looking much healthier now. With this month’s reduction in the 2020-21 ending stocks estimate – down to 2.503 billion bu from 2.756 billion in August – the corn stocks-to-use ratio has now dropped to about 17%, similar to where it’s been the past few years.

Back in the early spring, when American producers initially said they were planning to plant about 97 million acres to corn this year, early estimates suggested the 2020-21 corn ending stocks could swell to over 3 million bu with a stocks-to-use ratio of around 22%. However, planted area eventually ended up at just 92 million acres and dryness in the western Corn Belt has since taken the top off yield potential as well.

In fact, the USDA’s 2020-21 season average price forecast for corn now sits at US$3.50/bu, way up from $3.10 in August and just a dime below the estimate for 2019-20.

“It seems more likely to be $3.60 than $3,” and that’s about what we were looking at just last month,” Langemeier said of the average corn price.

Source: DePutter Publishing Ltd.

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