One thing is clear about the outlook for the 2005 U.S. corn crop — another crop like last year would not be good for prices. But a small crop would not be good either, given climbing corn use.
Last year's record-breaking U.S. crop, along with a large world crop, reversed a trend of four years of declining world ending stocks and several years in a row of rising prices.
World and U.S. corn stocks are now building, and the world stocks-to-use ratio has increased by 2.5 percent, to 16.5 percent. U.S. stocks-to-use ratio has climbed to a very comfortable 19 percent, at just under 2 billion bushels.
The trading range when stocks are this high offers some insight where prices could go during the season, according to grain and oilseed analyst Alan Brugler, Brugler Marketing & Management, Omaha, Neb.
The analyst points out that the average annual trading range for corn since 1983-84 is 94 cents a bushel. The smallest trading range, which typically comes during high stocks years, was 44 cents in 1992-93 when ending stocks were over 2 billion bushels. Conversely, the highest trading range, $2.69, came in 1995-96 when ending stocks slipped to 426 million bushels, the smallest ending stocks of the time period.
“If we can find the low for corn, I think we stand a good chance of seeing a 40-cent rally off that low,” Brugler said. “We just need to verify if the $1.91 we saw for corn last fall was it, or if we have a new one coming.”
Corn use is climbing, noted Brugler. “We have record consumption for corn between exports and food, seed and industrial, with exports the weakest link and ethanol the strongest. Crude oil prices and gasoline prices have been high enough that ethanol plants have been extremely profitable.
“I am concerned that we are going to over-expand the ethanol industry. If you have $30 oil, it pencils pretty well. If you have $20 oil, those plants could be in trouble. So if you're looking at getting involved in an ethanol plant, be sure that they are looking long-term.”
Brugler has three scenarios for the 2005 U.S. corn crop. His best guess is an increase in corn acreage of about 2.1 million acres, to 83 million acres. A trend yield of 142 bushels would produce a crop 10.6 billion bushels.
Total use would come in at 10.98 billion bushels, with feed and residual use the same or slightly smaller and food, seed and industrial use higher due to new plant construction for ethanol and a modest growth in exports, to 1.95 billion bushels.
Ending stocks would be around 1.6 billion bushels, “which is still very comfortable, a little tighter than this year. We would end up with a farm price of around $2.10. If that is an accurate estimate of the cash price, you would see a $2.70 futures price sometime during the season, and conversely somewhere in the $1.70 range on the downside.”
For a low-production scenario, Brugler has corn acreage at 80 million acres and an average yield of 133 bushels per acre. Production would be 9.6 billion bushels. With little change in projected use, ending stocks would fall to 750 million bushels, only 6.7 percent of use. The farm price would be $2.52.
Brugler's high production scenario has corn acreage at 84 million acres and yield at 150 bushels. That would produce a near-record 11.4 billion-bushel corn crop. Carryout would balloon to 2.2 billion bushels, stock-to-use to 19.7 percent and the farm price would drop to $1.85.