AgResource’s work suggests the most probable scenario for US corn prices is an ongoing broad range bound trend until more is known about South American corn prospects in 2018. The 2016/17 crop year was one of big US supplies and big US export demand. The 2017/18 year is likely to be marked by reduced demand and reduced supply. As such, stocks/use modeling implies neither a bearish nor bullish outlook without a sharp loss of US corn yield. Updated vegetation health compared to last year is offered to the left. Conditions ratings are rather low across the Dakotas and parts of the E Corn Belt. And the forthcoming heat and dryness will further cap final yield potential. ARC also notes that July ‘16 was blessed with heavy rainfall (90-200% of normal) and near to below normal temps. Such a pattern is unlikely in 2017. Already the forecast during the first 10 days of July is much drier than a year ago.
A year ago, US corn, wheat and soybean yields were all record large amid favorable weather. However, large US export demand was spurred by South American droughts (Brazil) and floods (Argentina).
This year, reduced demand (due to South American surpluses) will be offset by lower US production. Argentine fob corn is offered $.30/Bu below Gulf corn through September. Key differences between this year and last include the loss of exports, but also a boost in feed use amid the loss of wheat, oat, sorghum and barley production. Notice in the graphic at left that even assuming yield of 170, total production will fall just short of total demand, and thus a decline in stocks worth 150-300 Mil Bu is likely. The point is that it’s unwise to be overly bearish despite record South American corn export potential.
Based on crop conditions and weather to date, our work indicates the most probable US corn yield today rests between 165-169 Bu/Acre. End stocks are likely to be at or just below 2,000 Bil Bu, but even this does not suggest a major change in price lies in the offing. Notice below that the stocks/use price curve is rather flat as stocks build. A yield above 174 BPA is needed to turn bearish; a yield below 155 is needed to turn ultra-bullish. Any yield in between allows spot CME corn prices to trade between $3.40-3.90 thru harvest. End users should lock in forward coverage below $3.70 Dec, and producer clients should await rallies to $4.00+ to extend sales.
The harvest low price target has been rising with the rally in wheat and better than expected old crop demand for US soybeans. Expect a range unless Central US weather turns more adverse during July.
