September 1, 2015 View:
Slightly bullish. Corn progress is lagging and El Niño may adversely affect harvest.
Demand may surprise to upside with higher feed and ethanol usage.

Corn Price: $3.69

Review: Prices were relatively stable through CY2015 with a spike from June to July that has reversed

  • First leg up: Sept ’15 Corn prices rose 10.7% from 353 3/8 on June 19 to 391 1/8 on June 29 ahead of the June 30 USDA Acreage Report, which the market appeared to correctly anticipate.
  • June 30 USDA Acreage Report: The USDA survey indicated that corn planted acreage was down 2% to 88.9 million acres from 90.6 million acres in 2014. This would be the lowest planted acreage for corn since 2010. Corn prices rose 7.7% to 422 1/4 on the day.
  • July WASDE: The report indicated that US carryout would only be 1.56 billion bushels for MY2015/2016, compared to a forecast of 1.77 billion bushels just a month ago. Lower planted and harvested acreage were to blame. Corn prices rose to close at 434 3/8 on the day of the release and peaked at 443 1/8 two days later. However, prices did not hold and corn drifted lower to 377 3/8 on August 11, just prior to August WASDE.
  • August WASDE: The reduced carryout projected in July was reversed to 1.71 billion bushels on a forecast that yield increased from 166.8 bushels/acre to 168.8 bushels/acre. Corn fell nearly 5% that day to 358 5/8.

Supply: Total supply for MY2015/2016 is projected at 15.5 billion bushels

USDA forecasts supply by summing 1) beginning stocks with 2) production and 3) imports.
  1. Beginning stocks: revisions to beginning stocks at this point in the season should be negligible going forward
  2. Production: Production is the product of harvested acres and yield per harvested acre. Harvested acres was marked down in July WASDE while yield per harvested acre was marked up in August WASDE. The doughing and denting stages were lagging MY 2014/2015 conditions but have caught up and surpassed last year’s progress in the past two weeks. There should be some lead in this season’s crop progress because planting was ahead of schedule this year. Earlier doughing is beneficial to yield because doughing in the fall, when the days are shorter, results in less kernel mass. Cold weather at the doughing stage can kill the plant. The August 30 Crop Progress report indicated that US corn rated ‘excellent’ or ‘good’ fell further to 68% (vs 74% last year) on dry weather in the Midwest. Dry weather stresses late-filling crop but is amenable to maturing crop and harvest. Corn maturity is at 9%, lagging the 5-year average of 15%; therefore, expectations for a record strong El Niño in November could pose a risk to harvest.
  3. Imports: Corn imports are usually negligible, making up less than 0.25% of supply.

Demand: Total demand for MY 2015/2016 is projected at 13.8 billion bushels

USDA forecasts demand across four uses: 1) feed and residual; 2) food, seed & industrial; 3) ethanol & by-products; and 4) exports
  1. Feed & Residual: Feed & residual projections were increased from 5.275 to 5.3 billion bushels in August WASDE. This would be the same consumption for feed & residual use as the MY 2014/15; however, the US hog herd is up 9% and the US cattle herd is up 2% from 2014. Therefore, it is reasonable to expect further upward revisions to feed use for MY2015/16.
  2. Food, Seed & Industrial: The August forecast for MY2015/16 food, seed, and industrial use was 6.625 billion bushels, compared to 6.555 billion bushels for MY2014/15. USDA has wavered on this forecast between 6.56 and 6.645 billion over the course of CY2015 and there appears to be no trend in the direction of revisions.
  3. Ethanol & By-Products: Although crude oil prices have plummeted from excess production, gasoline demand remains strong. In August, USDA boosted corn bushels for ethanol use from 5.225 billion bushels to 5.25 billion bushels due to stronger gasoline demand projected by the EIA. This projection is ahead of 2014’s 5.2 billion and 2013’s 5.134 billion bushels and the project appears to be trending higher through CY2015.
  4. Exports: The latest projection of 1.85 billion bushels is the same as last year’s exports. USDA has adjusted this projection between 1.7 and 1.9 billion bushels over the course of CY2015.