With the US corn crop getting closer to harvest, it appears we'll have another US carryout that exceeds 2 billion bushels. With several private yield estimates released this past week, I updated the 2017/18 balance sheet (table 1). I used the following yield estimates to calculate an average corn yield of 167.86 bushels per acres: Informa 169.2; Allendale 166.7; FC Stone 166.9, Pro Former 167.1; USDA 169.5. Leaving demand unchanged, the 167.86 yield estimate leaves us with a 2,136-million-bushel carryout and stocks to use at 14.9%.
If we use the 14.90% stock to use in a linear regression model (table 2), we get an average US corn price of $3.41 per bushel. This is 10 cents per bushel higher than USDA's August US price forecast ($2.90-$3.70) midpoint of $3.30.
I've provided a NW Iowa weekly cash corn price chart (table 3) for the past 2 marketing years (15/16 and 16/17). The "average" NW Iowa cash corn price since September of 2015 is $3.24 per bushel and the "mode" is $3.21. Based on the current yield forecast, one would assume that we will continue to trade in this range. The shaded green area (table 3) is 1.5 standard deviations ($2.92 - $3.54).
Below, (table 4) I have provided monthly price averages for NW Iowa and the average current forward bid from four NW Iowa ethanol plants. The current September bid is 21 cents better than a year ago and the forward curve for the 2017/18 marketing year ($3.33) is 17 cents per bushel better than the actual cash average ($3.16) for the 2106/17 marketing year.
After reviewing the current yield estimates and total production, a rally outside of the past couple years trading range will be a challenge. With ample World Ending Stocks (table 5), it will take a substantial reduction in production to reduce US and World supplies. This could come from an "extreme" weather event or reduction in planted acres or both.
With the advancement in technology (equipment and seed genetics), the ability to produce trendline or above yields will be expected. Demand for corn continues to be robust, so any change that reduces production in South America, Ukraine and the US would potentially lead to higher prices in 2018, moving the market out of the current price range.
by Chris Benson