Transcript WHEAT OUTLOOK Midwest Outlook Conference 2005

CORN MARKET OUTLOOK
AAEA ANNUAL MEETING
EXTENSION CROP OUTLOOK SESSION
JULY 25, 2011
Daniel O’Brien
Extension Agricultural Economist
Kansas State University
Robert Wisner
University Professor Emeritus
Iowa State University
CORN MARKET PROSPECTS
A.  Risk of a Short 2011 U.S. Corn Crop
a) % 2011 U.S. corn crop ≤ 13.0 bln bu (13.47 bb July USDA)

Sharp rationing of livestock, export &/or ethanol corn use

Record low U.S. corn % stocks-to-use (≤ 5%)

Record high U.S. Corn $s in MY 2011/12 (≥ $6.50 /bu)
B. 2011 U.S. Corn Production
a) 2011 Planted & Harvested Acres?
• July 2011 NASS Northern Plains Survey of MN, ND, SD, Montana
• Late planting in Eastern Corn Belt (Ohio, Indiana, Michigan, etc.)
• River flood damage on the Missouri, Ohio, Mississippi & tributaries
• Likely a reduction in 2011 U.S. corn acres due to a combination of these
factors (from 92.3 to 91.8 mln acres planted, or even lower?)
CORN PRODUCTION IN 2011
B. 2011 U.S. Corn Production (more)
b) 2011 Corn Yield Prospects?
• Slow development due to late spring planting (OH, MN, IN, KY, NE,
KS, MI) → Fall 2011 corn maturity and/or freeze risk?
• High pressure weather system over central & eastern U.S. Corn Belt
(July-early August) → Damage during key development stages?
c) 2011 Corn Production Prospects?
• Increasing likelihood of reduced projections of 2011 U.S. corn
production (i.e., below 13.470 bln bu in July USDA reports) → Would
reductions be “marginal” (i.e., 13.25 bb) or “major” (≤ 13.0 0bb)?
• Probability of U.S. Corn Production Outcomes for MY 2011/12
 20% probability
148.8 bu/ac
12.565 bb U.S. Crop
 50% probability
153.0 bu/ac
12.920 bb U.S. Crop
 30% probability
159.0 bu/ac
13.425 bb U.S. Crop
CORN USE IN MY 2011/12
C. Corn Use: Is Price Rationing Occurring?
a) March-May 2011 Corn Use  16% vs 2010
o Feed use  44%, exports  8%, FSI  6%
b) Exports “slow”: Total U.S. corn shipments  4% vs 2010
c) Livestock Feed Use: With  livestock $s, are livestock
feeders better positioned to manage  corn $s?
o Yes, BUT low feed use in March-May 2011 raises questions about
potential rationing impact
o U.S. GCAUs projected @ 94.3 million for MY 2011/12
Vs 92.9 mln in MY 2010/11 & 91.6 mln in MY 2009/10
d) Ethanol / FSI Use: Steady, buy/sell margin dependent
o “Walk’n the line” of Blend Wall/RFS demand inelasticity
CORN ENDING STOCKS: MY 2011/12
D. Ending Stocks & %S/U: Will S/U be ≤ 5%?
a) Projected U.S. Corn Stocks-to-Use at/near Record Lows
o 6.4% (23.5 days supply) for MY 2011/12 → 2nd lowest since 1970
o 6.6% (24.1 days supply) for MY 2010/11 → 3rd lowest since 1970
o 5.0% (18.3 days supply) for MY 1995/96 → Record low since 1970
b) Probability of U.S. Corn Supply-Demand Balance
Outcomes for MY 2011/12
o 20%
12.565 bb Crop
590 mb end stocks
4.6% S/U****
o 50%
12.920 bb Crop
660 mb end stocks
5.0% S/U**
o 30%
13.425 bb Crop
825 mb end stocks
6.1% S/U
c) Low MY 2011/12 end stocks carrying into MY 2012/13
o Tight U.S. corn stocks persisting 1-2 years until Supply > Use
WORLD COARSE GRAINS S/D
D. World Market: “Production issues?”
a) Sensitivity to Foreign Coarse Grain Supply-Demand
o Crop Issues in Canada, Ukraine, Brazil
o Increased China & Mexico import needs
b)  World Coarse Grain Ending Stocks (July WASDE)
100%+ due to projected  U.S. Corn Production / Stocks
o World End Stocks = 148.23 mmt (12.9% S/U) → up 3.97 mmt
o U.S. End Stocks
= 24.80 mmt
→ up 4.08 mmt
o Non-US End Stks = 124.44 mmt
→ dn 0.09 mmt
 World Coarse Grain Ending Stocks for MY 2011/12 are
vulnerable to potential reductions in 2011 U.S. corn &
coarse grain production prospects!!! (4 mmt = 157 mb)
CORN PRICE PROSPECTS
E. U.S. Corn Prices: Driven by S/D (+ other?)
a) Probability of U.S. Corn S/U & Price Scenarios for MY
2011/12
o 20%
590 mb end stocks
4.6% S/U
$7.00-$8.00 /bu
o 50%
660 mb end stocks
5.0% S/U
$6.10-$7.10 /bu
o 30%
825 mb end stocks
6.1% S/U
$5.50-$6.50 /bu
 Increasingly inelastic U.S. corn price responses as total
corn supplies & Supply/Demand balances tighten
b) Low Stocks → Inelastic Demand → Volatile/High $s
o IF tight U.S. corn stocks persists 1-2 years until Supply > Use,
THEN expect to have volatile corn markets through MY 2012/13 +
c) Financial & Currency Market Effects on Corn $s???
o S/D factors (+USD$) determinate; specs in/out affects $volatility
U.S. CORN SUPPLY-DEMAND**
USDA FEED OUTLOOK REPORT: 7/14/2011 (ETHANOL-DDGS SEPARATE)
MY 2009/10 MY 2010/11 MY 2011/12
86.4
88.2
Planted Ac. (mln.)
92.3
79.5
81.4
Harvested Ac (mln.)
84.9
Record High 164.7
152.8
Yield (bu./ac.)
158.7
1,623
1,708
Beginning Stocks
880
Old Record 13,092
12,447 Record 13,470
Production
Record 14,774
14,180
Total Supplies
14,370
**3.290
**3.620
Ethanol **
**3.690
1,371
1,380
Other Food, Seed, Ind.
1,400
1,987
1,875
Exports
1,900
**1.280
**1.430
DDGS (ethanol) **
**1.460
5,140
5,000
Feed & Residual
5,050
13,066
13,305
Total Use
13,500
(13.1%) 1,708
(6.6%) 880
End Stocks (%S/U)
(6.4%) 870
$3.55
$5.25
U.S. Avg. Farm $
$5.50-$6.50
U.S. CORN USAGE & END STOCKS
SEPARATION
OF
CORN-ETHANOL & CORN-DDGS (USDA FEED OUTLOOK REPORT, 7/14/2011)
MY 2011/12 U.S. CORN S/D SCENARIOS
LOW, MEDIUM & HIGH U.S. CORN YIELD SCENARIOS (WISNER-O’BRIEN)
Planted Ac. (mln.)
Harvested Ac (mln.)
Yield (bu./ac.)
Beginning Stocks
Production
Total Supplies
Ethanol
Other Food, Seed, Ind.
Exports
Feed & Residual
Total Use
End Stocks (%S/U)
U.S. Avg. Farm $
Low Yield Medium Yield High Yield
91.8
91.8
91.8
84.4
84.4
84.4
(20%) 148.8 (50%) 153.0 (30%) 159.0
880
880
880
12,565
12,920
13,425
13,465
13,820
14,325
4,825
4,950
5,050
1,350
1,370
1,400
1,850
1,900
1,950
4,850
4,940
5,100
12,875
13,160
13,500
(4.6%) 590
$7.00-$8.00
(5.0%) 660
$6.10-$7.10
(6.1%) 825
$5.50-$6.50
ECONOMIC FACTORS
AFFECTING
U.S. GRAIN MARKETS
U.S. DOLLAR INDEX
MONTHLY PRICE CHART (DX – NYBOT): MAY 2002– JUNE 2011
Range of $74-77 in July 2011 (74.41 on 7/22/2011)
Index = 85
Index = 75
U.S. DOLLAR INDEX
WEEKLY PRICE CHART ($USD): JULY 2008 – JULY 22, 2011
LIGHT CRUDE OIL PRICES
WEEKLY PRICE CHART ($WTIC): JULY 2008 – JULY 22, 2011
CONTINUOUS CRB INDEX
MONTHLY INDEX CHART (CI–NYBOT): MAY 2002 – JUNE 2011
Index = 650
Index = 550
Index = 450
623-656 range in July 2011 (651.73 on 7/22/2011)
BALTIC DRY INDEX
WEEKLY PRICE CHART ($BDI): JULY 2008 – JULY 22, 2011
Indicator of the competitive market cost of
buying space onboard ocean shipping vessels
DOW JONES INDUSTRIAL AVERAGE
WEEKLY PRICE CHART ($INDU): JULY 2008 – JULY 22, 2011
FEEDGRAIN MARKETS:
CORN & GRAIN SORGHUM
U.S. CORN % END STOCKS-USE
MY 1985/86 THRU MY 2011/12
JULY 12, 2011 USDA WASDE REPORT
U.S. CORN %STOCKS/USE VS PRICE$
MY 1973/74 THRU MY 2011/12 JULY 12, 2011 USDA WASDE REPORT
CBOT DEC 2011 CORN FUTURES
JULY 21, 2010 THROUGH JULY 22, 2011
$7.14
High close of $7.14 on July 9th 2011
Up since $5.96¾ on July 1st 2011
$5.96¾
Close of $6.85 ½
on July 22, 2011
CBOT CORN FUTURES
MONTHLY: MAY 2002 THRU JUNE 2011
$7.50
$6.25
$5.75-$7.00 for July
($6.90 on 7/22/2011)
CBOT CORN FUTURES
MONTHLY CARRYING CHARGES & NEW CROP TRENDS: JULY 22, 2011
63% of
full carry
50% fc
44% fc
CFTC data through July 18, 2011; Used by permission of Dale Durchholz, Agrivisor
U.S. CORN SUPPLY-DEMAND
USDA WASDE REPORT: JULY 12, 2011
MY 2009/10 MY 2010/11 MY 2011/12
86.4
88.2
Planted Ac. (mln.)
92.3
79.5
81.4
Harvested Ac (mln.)
84.9
Record High 164.7
152.8
Yield (bu./ac.)
158.7
1,623
1,708
Beginning Stocks
880
Old Record 13,092
12,447 Record 13,470
Production
Record 14,774
14,180
Total Supplies
14,370
4,568
5,050
Ethanol
5,150
1,371
1,380
Other Food, Seed, Ind.
1,400
1,987
1,875
Exports
1,900
5,140
5,000
Feed & Residual
5,050
13,066
13,305
Total Use
13,500
(13.1%) 1,708
(6.6%) 880
End Stocks (%S/U)
(6.4%) 870
U.S. Avg. Farm $
$3.55
$5.25
$5.50-$6.50
U.S. CORN USE & END STOCKS
MY 2004/05 THRU MY 2011/12 JULY 12, 2011 USDA WASDE REPORT
U.S. CORN SUPPLY-DEMAND**
USDA FEED OUTLOOK REPORT: 7/14/2011 (ETHANOL-DDGS SEPARATE)
MY 2009/10 MY 2009/10 MY 2011/12
86.4
88.2
Planted Ac. (mln.)
92.3
79.5
81.4
Harvested Ac (mln.)
84.9
Record High 164.7
152.8
Yield (bu./ac.)
158.7
1,623
1,708
Beginning Stocks
880
Old Record 13,092
12,447 Record 13,470
Production
Record 14,774
14,180
Total Supplies
14,370
**3.290
**3.620
Ethanol **
**3.690
1,371
1,380
Other Food, Seed, Ind.
1,400
1,987
1,875
Exports
1,900
**1.280
**1.430
DDGS (ethanol) **
**1.460
5,140
5,000
Feed & Residual
5,050
13,066
13,305
Total Use
13,500
(13.1%) 1,708
(6.6%) 880
End Stocks (%S/U)
(6.4%) 870
$3.55
$5.25
U.S. Avg. Farm $
$5.50-$6.50
U.S. CORN USAGE & END STOCKS
SEPARATION
OF
CORN-ETHANOL & CORN-DDGS (USDA FEED OUTLOOK REPORT, 7/14/2011)
U.S. CORN USAGE & END STOCKS
SEPARATION
OF
CORN-ETHANOL & CORN-DDGS (USDA FEED OUTLOOK REPORT, 7/14/2011)
MY 2011/12 U.S. CORN S-D SCENARIOS
LOW, MEDIUM & HIGH U.S. CORN YIELD SCENARIOS (WISNER-O’BRIEN)
Planted Ac. (mln.)
Harvested Ac (mln.)
Yield (bu./ac.)
Beginning Stocks
Production
Total Supplies
Ethanol
Other Food, Seed, Ind.
Exports
Feed & Residual
Total Use
End Stocks (%S/U)
U.S. Avg. Farm $
Low Yield Medium Yield High Yield
91.8
91.8
91.8
84.4
84.4
84.4
(15%) 148.8 (50%) 153.0 (35%) 159.0
880
880
880
12,565
12,920
13,425
13,465
13,820
14,325
4,825
4,950
5,050
1,350
1,370
1,400
1,850
1,900
1,950
4,850
4,940
5,100
12,875
13,160
13,500
(4.6%) 590
$7.00-$8.00
(5.0%) 660
$6.10-$7.10
(6.1%) 825
$5.50-$6.50
U.S. GRAIN SORGHUM SUPPLY-DEMAND
USDA WASDE REPORT: JULY 12, 2011
MY 2009/10 MY 2010/11 MY 2011/12
Planted Acres (mln.)
Harvested Ac. (mln.)
Yield (bu./ac.)
Beginning Stocks
Production
Total Supplies
Food, Seed, Industrial
Exports
Feed & Residual
Total Use
End Stocks (%S/U)
U.S. Avg. Farm $
6.6
5.5
69.4
55
383
438
90
166
140
5.4
4.8
71.8
41
345
387
95
140
125
396
(10.4%) 41
360
(7.5%) 27
5.3
4.6
65.4
27
300
327
90
130
80
300
(9.0%) 27
$3.22 $5.10-$5.30
$5.10-$6.10
U.S. MILO USE & END STOCKS
MY 2004/05 THRU MY 2011/12 JULY 12, 2011 USDA WASDE REPORT
ETHANOL PRICE, COST & PROFITS
ISU ETHANOL PLANT MODEL (JANUARY 2005 – JUNE 2011)
Price
$2.60
$3.00
$2.50
Cost
$2.54
$2.00
$1.50
Net
$0.06
$1.00
$0.50
$0.00
($0.50)
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
$ Per Gallon of Ethanol
$3.50
Profit-Loss
Ethanol Price
Ethanol Breakeven
CBOT SEPT 2011 ETHANOL FUTURES
JULY 22, 2010 THROUGH JULY 22, 2011
High close of $2.794 on July 22, 2011
$2.727
Up since $2.357 /gal on June 30, 2011
$2.36
Close of $2.795
on July 22, 2011
CBOT DEC 2011 ETHANOL FUTURES
JULY 22, 2010 THROUGH JULY 22, 2011
High close of $2.554 on July 19, 2011
$2.55
Up since $2.175 /gal. on June 30, 2011
$2.18
Close of $2.543
on July 22, 2011
U.S. CORN ETHANOL - FSI USE
JULY 12, 2011 USDA WASDE REPORT
U.S. ETHANOL INDUSTRY CAPACITY
SOURCE: RENEWABLE FUELS ASSOCIATION
If E-15 is fully implemented by end of year 2015,
then would need 20-21 bgy
U.S. Ethanol production capacity,
using ≈ 7.5 bln bu of U.S. corn / year
WORLD COARSE GRAIN S-D
MY 2007/08 THRU MY 2011/12
JULY 12, 2011 WASDE REPORT
COARSE GRAIN EXPORTER SALES
MY 2009/10 THRU MY 2011/12 JULY 12, 2011 USDA WASDE REPORT
COARSE GRAIN IMPORTERS
MY 2009/10 THRU MY 2011/12 JULY 12, 2011 USDA WASDE REPORT
WORLD CORN %S/U: VIEW #1
WORLD, U.S. & WORLD LESS U.S. MY 1970/71-MY 2011/12
A. U.S. S/U in mid-1980s was a major contributor to  World S/U
B. U.S. S/U since MY 2000/01 partly affected  World S/U
A
B
WORLD CORN %S/U: VIEW #2
WORLD, CHINA & WORLD LESS CHINA MY 1970/71-2011/12
A
B
WORLD CORN %S/U: VIEW #3
U.S., CHINA & WORLD LESS BOTH MY 1970/71-2011/12
CBOT DEC 1996 CORN FUTURES
HOW CORN MARKET RESPONDED TO TIGHT S/U IN SUMMER 1996
Q. How likely is this corn
price pattern in 2011?
Strong move higher through early July
Down/up thru July-Aug; Decline into fall
QUESTIONS?
Daniel O’Brien
Extension Agricultural Economist
Kansas State University
Robert Wisner
University Professor Emeritus
Iowa State University
Grain Market Analysis
information is available on
www.agmanager.info