Although there will likely be adjustments made into January 2016, the production side of the supply and demand situation has largely been determined. USDA’s October estimates appear in the chart below.
Adjustments for planted and harvested acres were slight and predictable, with yields rising slowly. Demand will determine the extent of price increases if a post-harvest rally is in the cards.
Demand Surprises. The estimated ending stocks by USDA appear to have pretty good demand penciled in, considering the global competition we producers face in the U.S.
This year, total use for corn stays basically unchanged from last year, however ending stocks fall nearly 200 million bushels, while soybean total demand was lowered 200 million bushels, reflecting significant stocks yet to be marketed by Brazil and Argentina. USDA estimated demand on the notion the corn crops for 2016 in the Southern Hemisphere would decrease in favor of soybeans. Some see ending stocks for corn and soybeans as sufficient to absorb an increase in demand while meeting U.S. domestic and export needs. That has been a price-depressant.
Missing The Mark. In assessing current potential for price appreciation, it is good to recall what USDA thought ending stocks for marketing year 2014/15 (reflected as beginning stocks for 2015/16 in the tables) would be. In October 2014, corn ending stocks were estimated at 2.081 billion bushels, soybeans at 450 million bushels. This is in stark contrast to the actual 1.731 billion bushels and 191 million bushels, respectfully, reported for Aug. 30, 2015. Demand projections were severely underestimated.
Bottom Line. Fundamentals do matter—there are just so many fundamentals it is difficult to track them all. I look at the bigger picture, like that shown in supply and demand tables. New competitors and their production can’t be understated.
Total non-U.S. corn production has increased over 3.2 billion bushels, with Ukraine, Argentina and Brazil corn production doubling in the past 10 years.
Soybean production increased 68 million metric tonnes, or 2.4 billion bushels, for Brazil and Argentina combined over that period. A mere 5% reduction in last year’s 156 million metric tonnes of Southern Hemisphere production would equal nearly a 300-million-bushel drop for soybeans. A 5% reduction in non-U.S. corn output is nearly 500 million bushels.
Our ending stocks cannot withstand a 5% drop in production by non-U.S. competitors.
Yes, fundamentals still matter. With more non-U.S. competition and global demand rising by nearly every consuming nation, projecting demand might be more of an art than a science.
Corn and Soybean Supply and Demand Outlook