Mark Welch, Texas A&M ag Extension economist says in his mid-January Market Grain Outlook, that USDA has made only minor changes to the U.S. and world corn supply and demand balance sheets in their first World Agricultural Supply and Demand Estimates for 2017. His market report continued as follows:
Overall production was lowered 78 million bushels on lower yields, but use was down on a drop in feed use. The impact on ending stocks was a decrease from 2.403 billion bushels last month to 2.355 billion. The mid-point of the season average farm price increased a nickel from $3.35 to $3.40.
The drop in U.S. production was the dominant feature of world corn supply and use. World corn supplies in the 2016/17 marketing year were reduced 700,000 metric tons, use was up 500,000 metric tons, which lowered world ending stocks by 1.3 million metric tons. Estimated days-of-use on hand at the marketing year end fell from 79 to 78½.
Corn stocks in all positions as of Dec. 1 were 12.4 billion bushels. That is 10 percent above last year and 22 percent above average. This level of carryover will likely serve to dampen upward price movement in response to minor adjustments to acres or yields in 2017. The current year ending-stock estimate is the highest since 4.3 billion bushels in 1987/88 and marketing year stocks-to-use ratio, the highest since 2005/06.
Though every year is different, the seasonal index for December corn futures contract indicates favorable pricing opportunities are more likely in the first half of the crop year.
With no pre-harvest pricing of the 2017 crop, I look for growing conditions in South America and estimates of next year’s acreage to shape the early season price for next year’s crop. Conditions in Brazil are generally favorable and USDA made no adjustment to production numbers from South America.
The soybean-to-corn price ratio suggests a significant shift in acres in the U.S. next year. The 20-day average of the November soybean to December corn price ratio for 2017 is 2.6. That is a level that favors soybean over corn returns in many Midwest crop budgets. Last year the price ratio of the RMA base prices was 2.29; the ratio during the survey period for planting intentions was 2.35.
In the early ethanol era, the January crop report was a source of significant market volatility; limit moves were the norm. The past several years have been more subdued with the futures price of the December contract in January about what you would expect given seasonal price patterns, some risk premium early in the year with lower prices at contract expiration.