Lower Production, Reduced Use and Smaller Ending Stocks for Corn

Corn yields have finally been reduced in this month’s USDA supply-demand estimates but ending stocks have not dropped as much as the trade was expecting.

In updated supply-demand estimates released Friday, the USDA lowered American corn production by 118 million bu from October based solely on a drop in national yields. Harvested area remained unchanged from last month’s report, resulting in a production estimate of 13.661 billion bu. This is above the average pre-report trade guess of 13.575 billion bushels and represents a 5.3% decrease from last year.

Despite the significant reduction in yields, ending stocks saw only a mild reduction. Ending stocks for the current marketing year are forecast by the USDA at 1.91 billion bu, a drop of only 18 million bu from October and 204 million from 2018-19. These stock levels came as a surprise as they are significantly higher than the average pre-report trade guess of 1.756 billion bu.

Corn futures initially rallied on the news but have since traded down to more modest gains of 2 cents at the close.

As mentioned earlier, changes in the supply side of this month’s report come entirely from a reduction in yield from 168.4 to 167.0bu/acre. Although the figure is in-line with the average pre-report trade guess of 166.9bu/acre, it may come as a surprise to many who have been highly skeptical of the USDA’s corn yield estimates in previous reports.

In terms of demand, the USDA has continued its reduction of exports for the 2019-20 crop year dropping their estimate by another 50 million bu this month. The slow pace of early-season sales and shipments was cited as the reason. Corn used for ethanol was trimmed by 25 million bu based on September data from the Grain Crushings and Co-Products Production report, as well as weekly ethanol production data from the Energy Information Administration. Feed and residual use is also down this month by 25 million bu based on a smaller crop and higher expected prices.

The expected season-average corn price received by producers is raised 5 cents this month to US$3.85/bu based on observed prices to date.

World corn ending stocks for 2019-20 are estimated by the USDA at 295.96 million tonnes this month, down from 302.55 million in October and 320.06 million in 2018-19.

Source: DePutter Publishing Ltd.

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