Todd's Take

Estimating Ending Corn Stocks, Prices

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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This chart shows two possible scenarios for new-crop corn prices in 2019, the red arrow is a little bullish and the green arrow is extremely bullish. At this point, it is difficult to tell which one 2019-20 will finish closer to. (DTN chart by Todd Hultman)

On May 10, USDA estimated a 15.03-billion-bushel (bb) corn crop planted on 92.8 million acres, resulting in a higher ending corn stocks estimate of 2.485 bb for 2019-20, the most since the 1980s. The announcement sent December corn prices lower, but the market didn't put much faith in USDA's numbers, as report day finished with a 3/4-cent loss. We can now say those estimates are obsolete.

Rain has washed the chalkboard clean, and here on the last day of May, it's a good time to start fresh and sketch our own estimates of what might be possible for corn in 2019. Among the things we do know, USDA said 58% of corn was planted on May 26, the lowest progress in USDA's Crop Progress archive.

If we look for a similar year of slow planting, 1995 stands out. In that year, 56% of corn was planted as of May 21 and reached 97% planted by June 18. Modern planting equipment could speed up the process this year, if weather would cooperate. That is still a big "if."

The latest seven-day forecast shows rain across the Corn Belt, and many of the largest producing corn states need time to dry out. Here on the doorstep of June, estimating the number of corn acres that will get planted remains a difficult call. The next few weeks of weather could decide the difference between losing 6 million acres or more.

Before I jump into the estimate process, I want to thank DTN Contributing Analyst Joel Karlin for his new matrix of corn ending stocks possibilities, seen here:…

Karlin's matrix assumes 14.375 bb of U.S. corn demand in 2019-20, which I find reasonable, given the increased export competition we expect from Brazil and Argentina. The ending stocks estimates range from a couple hundred million bushels (mb) to 2.5 bb, depending on the variables you find reasonable.

The first estimate I offer is a scenario of minimal change. In other words, if the sun comes out next week, the angels sing and planting recovers better than expected in early or mid-June, I think it is reasonable that the U.S. will lose 6 million harvested acres of corn off of USDA's May estimate. I can be wrong, but the problems appear too pervasive and widespread to allow for less.

79.4 million harvested acres times the 20-year yield trend of 174.0 bushels per acre (bpa) equals a 13.82 bb corn crop. Borrowing Karlin's demand estimate of 14.375 bb puts ending U.S. corn stocks at 1.54 bb or 11% of annual use, down from USDA's estimate of 2.095 bb in 2018-19.

When looking at previous years when ending corn supplies fell near 11% of annual use, DTN's National Corn Index prices traded a wide range, -- between roughly $2.50 and $5.00 a bushel -- but the statistical correlation of the more likely cash price fell around $4.20 a bushel for this scenario of minimal change.

What if the problem turns out worse than described above? With 39 million acres of corn left to plant on May 26 -- and rain continuing to fall across the Corn Belt this week and probably early next week -- it is not unreasonable to anticipate a loss of more than 6 million acres. For comparison purposes, let's look at what a loss of 8 million harvested acres does to the bottom line.

You may have noticed I haven't talked about yield yet. In 1995, when the corn crop was planted late, the yield came in at 113.5 bpa, roughly 13% below trend. It is understandable that corn planted late, or in less than ideal circumstances, would suffer yield loss and it wouldn't be surprising to see that in 2019.

However, the question of yield is made more difficult by the fact that farmers aren't planting 1995 corn seeds in 2019. I asked DTN Crops Technology Editor Pam Smith and DTN Staff Reporter Emily Unglesbee how 2019 hybrids might compare to 1995 in these conditions. Both agreed that today's corn genetics should handle adverse conditions better than what we saw 30 years ago. Unglesbee pointed to the fact that traits offering weed control and insect control came after 1995. Smith explained, "We have much better planters that place seed better. We also have better hybrid placement and hybrids that respond to higher plant populations. Today's hybrids utilize nitrogen better and more common use of fungicides helps preserve yield."

Putting it all together, a scenario of losing 8 million harvested acres of corn with a modestly lower yield of 170 bpa, gives us a 13.16 bb crop. Sticking with Karlin's demand estimate above, this scenario brings ending U.S. corn stocks down to 878 mb or 6% of annual use.

A chart of historical cash corn prices indexed for inflation shows a price range of roughly $6 to $8 a bushel when ending corn stocks were at 6% of annual use. The reality in this scenario is that ending stocks may not actually get as low as 6% of annual use, as rising corn prices would start to ration demand.

The main point here is that a scenario of losing 8 million harvested acres plus some yield is an extremely bullish scenario that will also have an emotional component. Until more is known, shorts should be very cautious in this market.

Late in 2018, I advocated $3.80 a bushel as a reasonable target for cash corn prices around May of 2019, the typical time when seasonal peaks are made. Obviously, I didn't know at that time that this serious of a planting problem would emerge, or that DTN's National Corn Index would have closed at $4.09 on May 30. I am not comfortable talking about $6.00 corn, and it is not my intention to fuel a bullish frenzy or talk farmers out of taking good prices when offered. Given the situation we are in, we need to be aware of what corn prices could be facing. This is no time to nod off.

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Todd Hultman