Fundamentally Speaking

The impact on the corn market from the coronavirus situation has been severe.

Nearby corn futures are now trading at their lowest levels since the summer of 2016 with spot prices very likely to fall below the $3.00 per bushel level which has not been seen since 2009.

Forward values could fall even more should the planting intentions figure of 97 million be realized and demand cut sharply due to COVID-19.

2020/21 ending U.S. corn stocks could be the highest since 1987/88 year at well over 3.3 bln bushels.

The stocks-to-use ratio would be the largest since 1992/93 if one were to take the USDA demand figure of 14.740 bln they gave at their February 2020 Ag Outlook Forum, which now seems very high at 640 million above their revised 2019/20 carryout projection.

We think that the situation could be even more bearish and have actually seen ending stocks figures for next year in excess of 4.0 billion bushels (bb).

The attached graphic is a matrix of what the 2020/21 stocks-to-use ratio could be using various combinations of planted acreage in millions going across the x-axis at the top and yields in bushels per acre going down the y-axis on the left.

Our assumptions include an estimate of 20/21 beginning stocks at 2.272 bb vs. April 2020 WASDE ending stocks of 2.092 bb as we have lower estimates for this year's final export, ethanol and feed demand.

Our estimate of total 2020/21 consumption at 14.100 bb vs. the USDA projection given at their Feb 2020 Outlook Forum of 14.740 bb seems more realistic.

We do expect USDA economists to acknowledge the demand destruction that has taken place since they made their first stab at next year's demand when they issue their first computer based estimates for the 2021 U.S. corn supply-demand in next month's WASDE report.

It appears that unless corn acreage is significantly pared back from the 97 million Prospective Plantings figure or yields fall back below 170 bpa, it is likely that the 2020/21 corn stocks-to-use ratio will be in excess of 20% implying December 2020 futures below $3.00, perhaps significantly so by the fall harvest.

Recall in a prior piece where we showed a trend relation between the final U.S. corn stocks/use ratios vs. the average farm price scatterplot using data from the 2007/08 season to this year, which explains about 85% of the projected farm price using the stocks-to-use ratio.

We assume that the average farm price is $0.30 cents below corn futures so using various stocks-to-use ratio figures some possible average farm price and new crop futures prices can be calculated for the 2020/21 marketing year.

The formula is average farm price = 0.7516 * (2020/21 stock/use ratio)-0.806

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