Each month, USDA’s World Agricultural Outlook Board issues its World Agricultural Supply and Demand Estimates (WASDE). This analysis updates old and new crop fundamental factors of supply and demand that are important in shaping current prices and the commodity price outlook.
Here is a look at the 2016 feed grain market, using the framework of the WASDE report to build toward a price outlook.
Beginning stocks: It was another excellent year for U.S. feed grain production in 2015. The average corn yield is estimated at 169.3 bushels per acre, the second highest on record, just below 171.0 bushels per acre in 2014. Grain sorghum yields were a record high 77.7 bushels per acre. Beginning stocks starting out the 2016 marketing year are estimated at about a 47-day supply, a 13 percent stocks-to-use ratio.
Production:Early season crop budgets in the corn belt do not show a net return advantage from corn over soybeans in major production regions. If farmers’ credit requirements are higher in 2016, crops with a lower cost of production and near equal returns, such as soybeans, may be favored.
At this point it does not appear that we will see a significant increase in corn acres in 2016, leaving plantings about the same, around 90 million acres. Using actual yields since 1980, a straight line yield projection for 2016 is 165 bushels per acre, 4 bushels per acre less than 2015. With this “normal” yield, corn production in 2016 would be down about 70 million bushels.
Imports: We do import a small amount of corn each year, averaging just over 30 million bushels per year since 2005. With adequate U.S. supplies, we do not expect that number to go up in 2016.
Total supply: With acres little changed and yields back to normal, total corn supplies in 2016 look to be down slightly compared to 2015.
Feed and residual: Livestock numbers and meat and dairy production are expected to increase in 2016, providing a steady foundation for feed use.
Food, seed, and industrial: Lower fuel prices are contributing to increased gasoline consumption, which in turn supports ethanol use. Some of the grain used for fuel may switch between corn and grain sorghum, depending on relative prices and sorghum export prospects.
Exports.: Global per capita consumption of grains continues to grow, even with slow rates of economic growth around the world. The relative strength of the dollar may hinder U.S. grain exports, but we are still the largest corn and grain sorghum exporter in the world.
Total use: Modest increases in domestic use (feed and fuel) will likely offset any reductions in exports, leaving total use estimates for 2016 unchanged from 2015.
Ending stocks: With slightly lower production and steady use, look for ending stocks to be down slightly at the end of the 2016/17 marketing year compared to 2014/15. This could mean a 46-day supply of corn, down from the 47-day supply at the start of the year.
Price: The October average closing price of the December corn contract in 2014 was $3.49 per bushel; in 2015 it was $3.83. Consistent with modestly tighter stocks, we expect the average December futures price in October of 2016 to be slightly higher, $3.95.
The overall picture of grain demand is strong, creating an environment in which grain prices are volatile relative to changes in supply. Prices may move lower if production prospects are again better than normal; they can still move higher with a threat of a supply disruption by a major producer anywhere in the world.