Deep Dive on USDA Grain Stocks

USDA graced us with a number of reports on Friday, Feb. 8, including final Crop Production, Grain Stocks and updated World Agricultural Supply and Demand Estimates (WASDE). The WASDE report put the stocks-to-use ratio at only 11.7%. If realized, that would be the tightest since 2013-14, when it was 9.16%. The cash average price for corn that year was $4.46.

Before you get too bulled up, remember that five months of that 12-month weighted average are already in the books. It will be tough, statistically, to get corn to rally high enough and fast enough to reach that kind of average price for the entire year. That said, stocks are tightening and supply-to-demand economics says that should be friendly to either cash or futures prices.

The Grain Stocks report says U.S. corn stocks on December 1 were 615 million bushels (mb) smaller than they were a year ago.

How did we get there?

Beginning stocks were down 153 mb from year ago. Production was 184 mb smaller after NASS cut the estimated national average yield to 176.4 bushels per acre (bpa) (taking it below year-ago levels by 0.2 bpa). The 2.5 bpa cut from November to final was the largest downward revision in bushel terms for that period in our data set, although not in percentage terms. The third leg of the bullish stool was exports. Census exports for the first quarter were 632 mb versus only 349 mb a year ago. Corn industrial use was down, but exports were a whole lot better.

The tightening of stocks is not uniform across the country. The five states we identify as the Western Corn Belt (IA, NE, MN, MO, KS) were holding 549.5 million fewer bushels on December 1 than they were a year ago. They typically represent about 49% of all U.S. corn supplies, but are down to 47.6% this year. The formula is the same as for the national numbers. September 1 stocks were 107 mb smaller and production was 237 mb smaller after the revisions. Those account for 344 mb of the decline. The other 205 mb represents increased regional disappearance. We don't have enough detail yet to determine if that was feed use, ethanol use or export use. We suspect a large percentage of it was due to the stronger exports, as some ethanol plants in the region have been mothballed.

East of the Mississippi River, things look totally different. The three Eastern Corn Belt states (IL, IN, OH) had 8 million more bushels on hand September 1 than the previous year, with most of it in Illinois. The 2018 production was 183.9 mb larger than last year. December 1 stocks were up 157.4 mb year over year. That's a whole lot different than the 549.5 mb deficit in the Western Corn Belt.

These eight states accounted for 76.5% of the U.S. corn inventory on Dec. 1. Others had some significant swings (for them), such as North Dakota dropping from 419 mb a year ago to 331 mb this December. South Dakota dropped from 663 mb to 650 mb. Those two states have roughly an extra hundred million bushels of soybeans on hand, but they are in OK shape on corn.

What's the bottom line?

We should expect corn basis nationally to be stronger than last year, with stocks and stocks-to-use ratios tighter. Bids west of the Mississippi River, in particular, should be firmer than a year ago, with the exception of some local drawing areas where ethanol plants are currently out of the market. The eastern U.S. should benefit from the overall national tightness, but has more inventory that needs to be moved. It would seem like a good setup for more of the Gulf barge market to be fed from the Eastern Corn Belt states, subject to water conditions on the Ohio and Illinois Rivers. Eastern livestock feeders will still be somewhat hostage to rail rates, but should have a touch more leverage on the Midwest back end. National basis, as measured by the DTN National Corn Index, is currently 3 cents stronger than last year.

Alan Brugler may be reached at alanb@bruglermktg.com

(BE/SK)

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