New-crop corn balance sheet numbers continue to paint a vividly bearish picture and the bulls are getting more and more concerned. Several analysts, banks and traders are throwing their hats in the ring in regard to new crop corn balance sheet estimates. The bottom line is that even an average crop is going to produce a huge carry, and ultimately weigh on prices. Those not wanting to price any new-crop bushels are essentially betting on another catastrophic growing season. Here is a very simply and elementary overview of what traders are being forced to consider. Follow along and run your own estimates:
Step #1. Estimate your planted acreage. Most guesses are somewhere between 97 and 100 million acres. Last year we planted 97.2 million acres. Most believe this number is going higher. I also find myself in this camp. As I travel around the country I find more folks wanting to be corn producers. For argument sake I will use 98 million as my planted acreage number.
Step #2. Estimate your harvested acres. This is a little tougher as it will depend on insurance, flooding, dry conditions, etc. I am thinking it will be somewhere between 89 and 91 million acres. I like to make it simple, so I am going to use 90 million harvested acres. Depending on the planted acreage number this could obviously work higher or lower, so don't over complicate these early guesstimates.
Step #3. Estimate your average yield. Obviously this is a complete wild card as well being this early in the game. Trend line is somewhere around 163/acre, but as we know it is dry in several areas and we just came off a 122.3 average. Simply take your harvested acreage estimate in Step #2 and multiply it by whatever you think the national average yield is going to be. Play around with these numbers as you see fit.
- 120 yield = 10.8 billion bushels in total production
- 130 yield = 11.7 billion bushels in total production
- 140 yield = 12.6 billion bushels in total production
- 150 yield = 13.5 billion bushels in total production
- 160 yield = 14.4 billion bushels in total production
- 170 yield = 15.3 billion bushels in total production
Step #4. Add in last year's carryout, currently estimated at 602 million bushels, and add in our imports. Currently the USDA is estimating 100 million in imports. Obviously assuming we have more available supplies then we will have fewer imports. Therefore I am using 70 million bushels as my import number.
Step #5. Add up your total product + carryout of 602M + total Imports to get you your total supply estimate.
Step #6. Start subtracting your demand estimates. The biggest chunk of demand will come from food, seed and industrial (FSI) use. The USDA currently has this number estimated at around 5.867 billion bushels. My hunch is if prices trend lower we will see a jump in overall demand, therefore I am thinking this number moves higher. Some folks believe the FSI numbers will move above 6.0 billion bushels. I would think a number somewhere between 5.9 and 6.4 billion would be safe. I will go with a 6.2 billion FSI estimate.
Ethanol is the largest part of the FSI numbers above and is obviously a major concern. I have to believe if prices trend lower, the ethanol plants will start seeing better margins (assuming crude stays fairly well supported). The USDA is currently estimating we will use 4.5 billion bushels of corn for ethanol production. As you know many believe this number is currently too high considering the recent plant closures and that the number should be more like 4.3 billion bushels. On the flip side, we used 5.0 billion the year before during our peak of ethanol production, and the margins are actually starting to improve a bit. I think with the margins improving ethanol will actually make a little rebound next year, therefore I am going to estimate corn used for ethanol at 4.8 billion bushels. It could certainly be a little higher if we can limit the Brazilian imports, but as of right now this seems like a fair assessment.
Step #7. Feed usage is another tricky one. One could argue that if corn prices get cheaper the cattle and hog populations are going to start expanding at a much quicker pace. I am not so sure about this one. The poultry industry seems somewhat maxed out, hogs could see a little jump, and cattle profitability makes it tough to expand the herd very rapidly. Moral of the story, yes overall feed demand will work higher from the USDA's current corn used for feed estimate of 4.450 billion bushels. Some in the industry think this number could move above 5.0 billion bushels if corn supplies are plentiful and prices decidedly cheaper. I am not so sure about that, as it seems a little aggressive, but anyway you slice I believe corn used for feed is moving higher, so let's just roll with the 5.0 billion bushel estimate. My hunch is this could be 200-300 million too high, but maybe I am a little low on ethanol usage so it might simply equal out.
Step #8. Exports as we know have been very disappointing. The USDA continues to cut their U.S. corn export expectations (now standing at just 900 million bushels) to levels not seen since the early 1970s. Obviously if prices dip and corn is in ample supply countries like China and Japan are going to try and restock their domestic inventories. This should help create more export business, the question is how much competition will we have from Argentina, Brazil or Ukraine? I am going to be extremely optimistic and say our exports rebound higher by 500 million bushels to 1.4 billion. This might be a real stretch, but I am hoping our quality and logistics can help us rebound.
Step #9. Add up your total demand numbers estimated in Steps #4, #5 and #6. My total demand estimate is a very optimistic 12.6 billion bushels. Keep in mind the USDA is currently estimating just 11.267 in total demand. I am hoping for a a gain of more than 1.3 billion bushels. This could obviously be a bit excessive.
Step #10. Subtract your total demand number from Step #8 from your total supply number in Step #4, and you now have your total new-crop carryout number. For you fans scoring at home, my new-crop carryout number is just over 2.0 billion bushels. OUCH! That is assuming a yield of 155 bu./acre. Obviously if we have a repeat of last year, prices could make all-time new highs ($9 plus), unfortunately any type of normal growing season that produces even below trendline yields of 143-163 and prices are more than likely moving much lower in the months ahead. Make certain you are preparing your operation based on the numbers you are projecting.
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