2019 Outlook: Corn Markets Hinge On Acreage Battle

As producers sit to put pencil to planting intentions for 2019,
many are wondering where to pencil in corn prices. One analyst
describes the corn market as torn, meaning it could either go much
higher, or it could find even more pressure than it’s
experiencing now.

The next growing season hinges on the corn balance sheet.
According to USDA’s November World Agriculture Supply and Demand
Estimates report, global corn carryout for 2018/2019 will total
334.18 million metric tons (MMT).  While that seems really bearish
for corn, it’s important to understand that USDA moved the
carryout number from its October estimate of 185.93 MMT based on a
surprise census survey from China which indicates that over the
past few years that country produced 20 to 30 MMT more corn than
USDA previously estimated. China does not publish their grain
stocks, so USDA and other analysts rely on surveys like the one
included in the November WASDE report to know how much grain the
country has on hand.

“Essentially, what we did is we added the very large number to
the world balance sheet, almost doubling world corn ending stocks
from what we believed it to be just last month,” explains Kent
Beadle, director of risk consulting services for CHS. “Throughout
the whole summer, we’ve had a very, very tight world stocks to
use and now that’s going to look a lot different.”

While ending stocks no longer look tight on paper, it’s
important to understand that a kernel of corn that’s in China is
not likely to leave.

“It’s been very long time since the Chinese were actually
active in the export market,” Beadle says. “It’s in China,
and it’s locked in China, and all we have to verify is that this
is what they say they have.”

When you remove the corn that is in China from the total, the
global carryout number is at a historically tight level, says Naomi
Blohm of Stewart-Peterson.

“Currently, the U.S. market is assuming that there will be a
substantial increase in U.S. planted corn acres for 2019, which is
why the corn price continues to be stuck in a narrow trading
range,” she explains. “The potential for more corn acres means
more supply which would alleviate the tight global carryout.”

The dynamic Blohm describes is why Mike North of Commodity Risk
Management Group describes the corn market as ‘torn.’

“If the corn market goes too high, it attracts more acres,
builds a bigger supply and takes away the very issue that gives it
lift,” he says.

In 2007 farmers largely abandoned their crop rotations to chase
ethanol-driven corn demand and there was a 14 million acre increase
in corn acres from one year to the next. According to North, the
soybean market is providing producers some incentive to shift acres
from soybeans to corn in 2019 as well. Although, the swing probably
won’t be that big.

“I would expect a big growth in corn acres, because people
will be running away from soybeans,” he says, adding that soybean
acres have grown significantly in the past few years. “So the
rotation on a national level is going to look probably a little bit
more like it did five years ago.”

Next year’s soybean prices are likely to be just over $9.
North says those prices combined with terrible basis creates a
completely different outlook than what producers saw last fall.

“Can I justify $8.50 or less for soybeans when I have a $4
futures price out there for corn, which I might be able to still
swing a basis of 30 cents on?” North questions.

On the other hand, if we see a corn price that’s too low, you
won’t attract the number of acres that we need to get our balance
sheet back to where it needs to be, North explains.

“Corn is going to be very torn as we go through the winter,
especially to find that proper point of balance in price, to
attract just enough acres, but not too many,” he says.

Should demand remain strong and acreage not explode Blohm says
we could “finally see upward price movement.”

Still, the University of Missouri Food and Agricultural Policy
Research Institute
doesn’t expect either a huge increase in
acreage or a huge increase in price. They expect planted acres to
increase from 89.1 million to 91.1 million and expect on-farm
prices to increase from $3.62 to $3.83 per bushel.

Wildcards For Corn

According to North, the balance sheet protects corn from moving
lower on many factors, but there are two wildcards still on the
table.

South America:

All eyes are on South America when it comes to global corn
supplies.

“With world corn demand expanding, the market is depending on
a rebound in South American production,” explains Brian Basting
of Advance Trading. “A recovery in output could send the market
lower, while another shortfall might provide market support.”

Year-Round E15:

One of the biggest policy wins for corn farmers in 2018 was the
Trump Administration’s move to allow sales of E15 all year.
That’s a factor that North says could cause demand explosion in a
few years.

“I think over the next one to two years, E15 growth could be
much larger than people have given it credit for,” North says.
“Some of the private blenders groups, like a KwikTrip or Caseys
that are offering this. They’re putting it in and doing some
different marketing. So instead of calling it E15 they’re calling
it OctanePlus.”

Source: FS – All – Food and Nutrition Blogs
2019 Outlook: Corn Markets Hinge On Acreage Battle