Latest on U.S. Corn Ending Stocks: Second Largest Since 1987/1988
By S. Patricia Batres-Marquez
Decision Innovation Solutions, 11107 Aurora Avenue, Urbandale, IA 50322
October 11, 2017
On September 29, 2017, the USDA updated its quarterly Grain Stocks report, which was the last report for the 2016/17 marketing year. The data indicated smaller-than-expected build-up in quarterly corn stocks. Nonetheless, as Figure 1 shows, estimated ending stocks for the 2016/17 marketing year are the second largest since 1987/1988 (4.259 billion bushels). Old crop (2016/17) corn stocks in all positions on September 1, 2017, were up 32.1 percent to a total of 2.295 billion bushels compared with September 1, 2016 (1.737 billion bushels). Thirty-four-percent (787 million bushels) of the total stocks were stored on farms up 25 percent year-over-year. The remaining 66 percent (1.508 billion bushels) represented off-farm stocks. Compared with the same period last year, off-farm stocks were up 35.9 percent (see Figure 1). Based on the June 29, 2017, grain stock report, which indicated a total of 5.229 billion bushels in corn stocks as of June 1, 2017, there has been a corn disappearance of 2.93 billion bushels between June and August 2017. Disappearance was down 1% year-over-year (2.97 billion bushels).
Figure 1. U.S. Corn Stocks
The September 17, 2017, World Agricultural Supply and Demand Estimates (WASDE) report indicated an estimate of 2.350 billion bushels for 2016/17 corn ending stocks, reflecting a difference of 55.034 million bushels from the number reported in the latest Grain Stocks report. The Grain Crushing and Co-Products Production report released by USDA on October 2, 2017, estimated corn used for fuel alcohol during August 2017 at 481.039 million bushels. This was an increase of 6 percent from the previous month and 5 percent compared with the same period last year. Adding this number (481.039 million bushels) to the total volume of corn used for ethanol production from September 2016 to July 2017 (4.959 billion bushels), the total volume of corn used for ethanol production during the 2016/17 marking year is estimated at 5.440 billion bushels. Compared with the estimated 2016/17 corn used for ethanol production published in the September 2017 WASDE report (5.435 billion bushels), there is a difference of only 5.4 million bushels, leaving 49.6 million bushels related to other uses. The adjustments to the 2016/17 corn balance sheet in the next WASDE report (October 12, 2017) will be reflected mainly in the corn used for feed and residual. The lower corn ending stocks also will be reflected in the new 2017/18 marketing year with a lower beginning stocks for the new year.
U.S. Corn Prices
USDA-NASS average monthly data indicates that for 37 consecutive months from August 2014 through August 2017, U.S. corn farmers have been receiving a monthly average price below $4.00/ bushel (see Figure 2). It is not expected the 2.3 percent reduction in corn stocks would have an impact on prices. Low corn prices are expected to continue throughout the 2017 calendar year. According to data published by USDA on August 30, 2017, based on expected lower corn prices, corn cash receipts in the 2017 calendar year are forecast to decline 0.7 percent to $45.755 billion from the estimate in 2016 ($46.059 billion). If this forecast is realized, this would be the fifth successive year of declining U.S. corn cash receipts (see Figure 3). The USDA will publish the last forecast for the current calendar year on November 29, 2017.
Figure 2. Monthly Average Corn Price ($/Bushel)
Figure 3. U.S. Corn Cash Receipts (Calendar Year)
Opportunities to Expand U.S. Corn Exports to China and Boost U.S. Corn Price?
According to the USDA-FAS GAIN report China: Biofuels Annual published February 7, 2017, from 2008 to 2016, China’s ethanol gasoline blend rate averaged 2.6 percent, with ethanol consumption ranging from 594 million gallons in 2008 to 1.010 billion gallons in 2016. Despite a relatively low blending percentage in China compared with the United States, China is the fourth largest producer and consumer of ethanol after the United States, Brazil, and the European Union.
China’s 2017 fuel ethanol production, consumption, and imports are forecast at 938 million gallons, 1.017 billion gallons, and 79 million gallons, respectively. Compared with the previous year, production and consumption are forecast to increase 12.5 and 0.7 percent year-over-year. Assuming 2.8 gallons of ethanol per bushel of corn, 335 million bushels of corn would be needed to reach the 2017 projected ethanol production. 2017 ethanol production expansion is being supported by a strong demand, abundant feedstocks, and government support. China 2017 fuel ethanol imports, on the other hand, are forecast to decline 64.8 percent from 2016 due to higher applied duties for imported ethanol and increasing domestic supplies. The applied imports duty for ethanol in 2017 is 30 percent compared with the previously applied preferential rate of 5 percent. The report (China: Biofuels Annual) also indicated that on October 24, 2016, China announced the goal to produce 1.674 billion gallons of ethanol by 2020, which would represent a 78.5 percent increase from the 2017 production forecast. In 2016, two provinces (Jiangsu and Hebei) adopted a 10 percent ethanol blend with gasoline (E10) mandate. In addition to these two provinces, by February 2017 China had launched an E10 mandatory pilot program in 11 provinces and 40 municipalities. The pilot program’s locations were chosen based on the proximity to grain production areas. At that time there were no proposals for a country-level blending mandate.
On September 13, 2017, Reuters news outlet reported China’s plans to increase the ethanol gasoline blending rate to 10 percent nationally by 2020; however, China has yet to announce a formal policy. This announcement highlights the need for China to boost its investment in ethanol plant capacity. According to the USDA-FAS’s China: Biofuels Annual report published in February 2017, in 2016 production capacity was equal to 951.1 million gallons and forecast at 1.109 billion gallons in 2017, for a capacity use of 88 percent in 2016 and 85 percent in 2017. China’s gasoline consumption forecast for 2020 indicates a volume of 46.588 billion gallons. Considering a 10 percent ethanol-gasoline blending rate, 4.659 billion gallons of ethanol would be consumed in China by 2020. Assuming a conversion rate of 2.8 gallons of ethanol per bushel of corn, 1.664 billion bushels of corn would be required to meet the 2020 ethanol consumption.
China aims to reduce corn stocks generated during the time of policy price support for corn producers, which was removed in 2016 and left China’s corn producers with some the highest corn cost of production in the world (USDA-FAS GAIN report China: Grain and Feed Annual published April 4, 2017). Also, China is transitioning from programs focusing on staple grains to programs focusing on feed security based on a basket of products. China has created several stimulus programs to induce farmers to diversify production. The September 2017 edition of the USDA-FAS’s Grain: World Markets and Trade report indicate 2017/18 China corn production and corn ending stocks are forecast to decline 2.1% to 8.464 billion bushels and 20% to 3.199 billion bushels, respectively, from the previous year. China’s 2017/18 marketing year corn imports are forecast to remain the same as in the 2016/17 marketing year at 118 million bushels. In the 2016 calendar year, the United States exported about 11.3 million bushels of corn to China, representing less than 1 percent of total U.S. corn exports during the 2016 calendar year (2.201 billion bushels). China was ranked as the 25th largest market for U.S. corn in the 2016 calendar year.
China’s corn import demand may remain stagnant given the country’s large corn stocks. In the mid-to-long term, once China reduces its corn stocks, and given the announced E10 blending by the year 2020, China’s corn import demand may start to increase. China is forecast to consume about 50.626 billion gallons of gasoline by 2024. A 10 percent ethanol blending would require 5.063 billion gallons of ethanol and about 1.808 billion bushels of corn(1).
(1)These estimates are based on the U.S. corn ethanol productivity level, the assumption China would have in place the level of ethanol production capacity necessary, would use corn as the only feedstock to produce ethanol, and the expected level of gasoline consumption in 2020 and 2024 would stay as projected in February 2017.
Batres-Marquez, S. Patricia. 2017. “Latest U.S. Corn Ending Stocks: Second Largest Since 1987/1988." Renewable Energy Report, Agricultural Marketing Resource Center, Iowa State University. October.