Latest 2018/19 Corn Projections: Lower Production and Yield, Still Record High
By S. Patricia Batres-Marquez
Decision Innovation Solutions
The World Agricultural Supply and Demand Estimates (WASDE) report released by USDA on October 11, 2018, indicated slightly lower 2018/19 corn production to 14.778 billion bushels, compared with the previous month projection (14.827 billion bushels), but up 174 million bushels (1.2 percent) year-over-year. If realized, 2018/19 production would be the second largest after 2016 (15.148 billion bushels). Production was revised down because of a lower yield forecast this month. Based on conditions as of October 1, 2018, the average 2018/19 corn yield forecast was reduced 0.6 bushels per acre to 180.7 bushels per acre from the September forecast (see Table 1). The latest yield forecast for 2018/19 was up 4.1 bushels per acre from the 2017/18 yield estimate (176.6 bushels per acre). If this yield projection is reached, this would be the highest on record. Among the top five corn producers, Iowa, Illinois, Nebraska and Indiana are projected to have state record yields with 204, 212, 195, and 194 bushels per acre, respectively. Minnesota’s yield is expected to decline to 191 bushels per acre year-over-year (193 bushels per acre), but if achieved this still would be the second largest on record (see Table 1).
As reported by USDA in the Crop Production report of October 11, 2018, based on data revisions, corn acreage was updated in several states, resulting in a slight reduction of 3,000 acres to 81.767 million acres in 2018/19 total area harvested from the September projection (81.770 million acres) (see Table 1). At the state level, revised harvested area was down by 100,000 acres each for Iowa and Nebraska. The October 2018 forecast for 2018/19 harvested area is now at 12.750 million acres for Iowa and 9.250 million acres for Nebraska. Compared with the previous month’s projections, Minnesota’s acreage increased by 50,000 to 7.450 million bushels and Indiana’s acreage was up by 250,000 acres to 5.170 million acres. For Illinois, the second largest corn producer after Iowa, the projection remained unchanged from last month at 10.850 million acres. At the national level, 2018/19 U.S. corn area harvested is projected down by 936,000 acres from 2017/18. The latest projections for 2018/19 harvested area for all top five corn producer states are lower compared with the previous year. Together, harvested area in these states is projected to decline by half a million acres year-over-year. Minnesota and Iowa would have the most corn acreage reduction in the 2018/19 latest projection. Minnesota’s acreage is down by 180,000 acres, while Iowa’s acreage is lower by 150,000 acres (see Table 1).
The 2018/19 corn supplies are forecast up 89 million bushels to 16.968 million bushels from last month’s projection.
Table 1. Corn Harvested Acres, Yield, and Production: United States and Top Producing States
Adjustments to the 2017/18 Marketing Year Estimate
Compared with the previous month, the October corn use estimate for 2017/18 included an increase of 13 million bushels in corn exports to 2.438 billion bushels; a 1 million bushel increase in corn for ethanol production to 5.601 billion bushels based on latest crushing data; a reduction of 148 million bushels in feed and residual use to 5.302 billion bushels; and a 7 million bushel decline in food, seed and industrial use (FSI) (excluding ethanol) to 1.453 billion bushels (see Figure 1). The 2017/18 ending stocks (2018/19 beginning stocks) were estimated at 2.140 billion bushels, which were down 6.7 percent from a year ago (2.293 billion bushels), but up 6.9 percent from last month’s estimate (2.002 billion bushels) (Figure 1).
The 2017/18 ending stocks (2018/19 beginning stocks) reported by WASDE in October (2.140 billion bushels) were based on corn stocks as of September 1, 2018, and reported by the USDA in the September 28, 2018, edition of the Grain Stocks publication. Corn stocks stored off farm totaled 1.520 billion bushels, up 1 percent from a year ago. On-farm stocks, at 620 million bushels, were down 21 percent from last September. As reported in the June 28, 2018, Grain Stocks publication, as of June 1, 2018, U.S. corn stocks in all positions were estimated at 5.3 billion bushels. Therefore, the corn disappearance from June to August 2018 was equal to 3.164 billion bushels.
Stocks in Iowa in all positions on September 1, 2018, were down 5.7 percent to 475.258 million bushels from September 1, 2017 (504.069 million bushels). Of the total corn stocks in Iowa on September 1, 2018, 71 percent (335.258 million bushels) were stored off-farm and were down 3 percent from a year ago. On-farm stocks (140 million bushels) were down 13 percent year-over-year (160 million bushels). Stocks also declined in other large corn producing states such as Illinois, Nebraska, Minnesota, and Indiana. Relative to the same period last year, September 1, 2018, corn stocks in those four states together totaled 943.244 million bushels, down 9 percent from a year earlier (1.037 billion bushels).
Figure 1. U.S. Corn Supply, Disappearance, and Ending Stocks
2018/19 Corn Utilization, Ending Stocks, and Price
Despite lower projected 2018/19 crop production (relative to the previous month’s estimate), corn supplies are forecast at a record high of 16.968 billion bushels. This is because, as discussed above, 2018/19 beginning stocks increased with the adjustments in the 2017/18 corn balance sheet this month. The corn for ethanol projection at 5.650 billion bushels is unchanged from last month’s, but is up by 49 million bushels (1 percent) from the 2017/18 estimate. At this rate, 38.2 percent of the projected production would be used for corn crushed for ethanol, while 37.6 percent (5.550 billion bushels) of the projected production is expected to end up as feed and residual.
In the latest projection, U.S. corn exports are up 3.1 percent (75 million bushels) to 2.475 from the September projection and up 1.5 percent year-over-year. The U.S. Exports Sales report for the week ending October 11, 2018, and published by USDA-FAS on October 18, 2018, indicated accumulated corn exports were up 80 percent to 286.499 million bushels compared to the same period in 2017.
Outstanding sales were estimated at 543.706 million bushels and were 27 percent ahead of last year. These export sale contracts represented 22 percent of the latest projected 2018/19 corn exports. U.S. corn exports do not follow a particular pattern during the marketing year, and strong, early corn sales do not necessarily indicate large sales throughout the year. USDA export projections are based on market dynamics in the world grain market. For example, this marketing year USDA is supporting the increase in corn exports on strong demand, particularly from Mexico, which is the largest importer of U.S. corn, due to competitive U.S. corn prices. In addition, uncertainties among competitors due to different factors, such as reduced corn crop in Russia, issues related to the minimum freight rate in Brazil, and Argentina’s new tax system on agricultural exports, including corn, give a positive outlook to the 2019/18 U.S. corn exports projection (USDA-FAS). Based on the latest export projection, 16.7 percent of the 2018/19 corn production would be sold overseas.
The October corn balance sheet indicates record high 2018/19 total corn use at 15.155 billion bushels. Corn ending stocks for the current marketing year were raised 2.2 percent to 1.813 billion bushels from the previous month, but down 15.3 percent from the last marketing year estimate of 2.140 billion bushels. The price projection stayed the same as last month at $3.50 ($3.00 to $4.00) per bushel; however, the projection is up $0.14 per bushel compared with the upgraded 2017/18 price estimate at $3.36 per bushel.
The estimated stocks-to-use ratio of 12.0 percent is higher than the previous month’s forecast (11.7 percent), but lower than 2017/18 (14.5 percent). The ratio is a measure of the supply and demand relationship. The ratio indicates the level of ending stocks or carryover stocks as a percentage of total use (total demand). Overall, there is an inverse relationship between price and ending stocks (i.e., lower ratios tend to indicate stronger prices and conversely); therefore, if total use increases relative to supply, ending stocks drop and commodity prices will tend to increase. Alternatively, if supply increases relative to total use, prices tend to decrease since ending stocks rise. The correlation coefficient between stocks-to-use ratio and price was estimated at -0.899 for the 2007/08-2017/18 historical period. The correlation coefficient measures the strength and direction of a linear relationship between two variables and its value is always between +1 and -1. The correlation coefficient -0.89 indicates a strong negative relationship between these two variables during that period. Figure 2 shows marketing year average price (MYA) and stocks-to-use (stocks/use) ratios for corn during the historical 2007/08-2017/18 period and the projected 2019/19 year.
Figure 2. Corn Marketing Year Average Price and Stocks-to-Use Ratio
With only two months into the current marketing year, the price projection will change. On the supply side of the corn balance sheet, the final corn production estimate won’t be known until January 2019 when USDA publishes the annual crop production report for the 2018/19 marketing year. The corn demand side (FSI, exports, and feed and residual) will continue refining, and ending stocks will be adjusted accordingly throughout the marketing year. Final 2018/19 ending stocks estimates will be published in September 2019, 11 months from now. 2018/19 corn price variations are expected from the current projection.
Meanwhile, EPA is about to begin a formal rule-making process to allow year-round sales of E15. In June 2011, EPA approved blends of 15 percent volume ethanol in gasoline for use in model year 2001 and newer passenger cars, light-trucks and medium-duty vehicles. Under the current rule, E15 sales are not allowed during the summer months (May 1-September 15). Year-round sales of E15 would increase demand at least in the areas where there are designated E15 pumps, this in turn would benefit corn growers by the increase in corn demand for ethanol and corn price increase.
Batres-Marquez, S. Patricia. 2018. “Latest 2018/19 Corn Projections: Lower Production and Yield, Still Record High." Renewable Energy Report, Agricultural Marketing Resource Center, Iowa State University. October 2018.