Shrinking Global Stocks Create Bullish Story for Corn Prices

April 27, 2018 09:35 AM
 

A few important factors are at play that could keep corn prices on an upward trajectory for the next year. Declining U.S. corn acres, a slow start to corn planting and stable domestic consumption are all painting a rosy picture for corn, according to a new report from RaboResearch.

“Of the major global grain and oilseed crops, corn seems most susceptible to elevated prices primarily because global stocks have declined over the past year,” says Sterling Liddell, vice president and senior global analytics specialist with RaboResearch. He is featured in the new report, “Don’t Fall Asleep Behind the Risk Management Wheel: Modelling the Price Risk for Corn.”

Both global corn and soybeans stocks are expected to decline during 2017/18, by 14.5% and 6.6%, RaboResearch reports. Four of the largest exporters’ reserves of corn will all shrink.

Therefore, with USDA’s planting intentions of 88 million acres, the 2018 season is increasingly likely to see U.S. corn stocks-to-use fall below critical points. That should create increased bidding for corn. 

“This 88 million acres of corn drops below what we call an equilibrium point, where the balance sheet remains neutral,” Liddell says. “At 88 million acres, that means we are below equilibrium, which starts to increase the probability that we’ll actually deplete stocks this years as opposed to keeping the same or growing.”

Since the U.S. is the largest exporter with the most available corn stocks, global stocks will decline through 2017/18. Tightening U.S. fundamentals generally affect both global prices and the prices of other crops competing for the same acreage, according to RaboResearch.

Global Corn Stocks

Here are the main impacts of the tightening corn balance sheet:

  1. At only 88 million planted U.S. corn acres, price risk is much more sensitive to U.S. or global yield issues compared to the past three years.
  2. The probability of sustained bullish prices increases significantly with any prevented or planting or acreage shifts out of corn. Increased prices will benefit farm-level economics, which have been struggling over the past three years.
  3. Futures price volatility is likely to increase through June and potentially extend through August, depending on weather conditions during pollination.
  4. Additional new fund money is expected to flow into futures contracts with any sign of production disruption.
  5. As the most significant variables in the 2018 corn balance are supply-oriented, the U.S. production cycle is likely to be a reasonably good guide for the timing of significant market volatility. 

 

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Comments

 
Spell Check

Walter Nelson
Windsor, CO
4/27/2018 10:19 PM
 

  I see no specific mention of ethanol production which we are told is slipping due to RFS waivers. This could affect end use immensely. I'd be careful of counting on high corn until it happens.

 
 

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