With 2017 now in the books, it’s time to look back at the major factors impacting prices in the corn market. By knowing where we were, we will have a better sense of where we’re heading in 2018 and beyond. In The fourth quarter, corn prices fell 1.2% thanks to a 1.35% decline in the final month of the year.
Major trends in the space will not only affect prices in the U.S., but also decisions by farmers on what to grow and sell in the year ahead. Let’s take a look at the major events and price movements that defined 2017 corn prices.
Is Corn No Longer King?
When we look back on 2017, we’ll remember a glut in global supply and the government-run solutions to address international production
Here in the United States, the second-largest crop on record came in at 14.58 billion bushels for 2017. That number is down from the record crop of 15.15 billion bushels in the previous year, but it’s still enough to raise concerns about global supplies and prices for farmers.
The U.S. Grains Council says that we saw strong plant health and good kernel size, in addition to 95.1% of the corn tested coming in as No. 2 corn.
So, what about prices and key trends worth noting?
Corn prices finished 2017 down 0.3%. In Chicago, cash prices peaked in early July at $3.885. Prices had been following wheat higher over concerns about drought conditions in three states – Montana, South Dakota, and North Dakota.
But the July WASDE report led to a sharp reversal. First, the USDA projected that ending corn stocks could come in at 2.32 billion bushels. That figure was well above the average analyst call of 2.181 billion bushels. It was also a big increase from the 2.11 billion bushels listed in the June report.
In addition, the July WASDE featured an uptick in production by an additional 190 million bushels after the agency crunched numbers from the June 30 acreage report.
But the big number that shook sentiment was the agency’s decision to leave yield expectations unchanged from June estimates. That July report featured a yield expectation of 170.7 bushels per acre.
The agency noted that even though precipitation for major corn producing states was below normal, the pollination period starting the following month would be more important.
Naturally, the typical doubts about the accuracy of the WASDE reports accelerated during the summer months leading into the fall. Even when the USDA announced in August that average corn yields sat at 169.5 bushels per acre (a five-bushel decline from the previous year), significant doubt about the methodology existed.
“People are very skeptical of the USDA and the entire process of how the agency reaches its conclusions,” FarmLead’s Doug Kirk told us while traveling on the 2017 Farm Journal Crop Tour. “The methodology isn’t that well understood, so producers are skeptical.”
Some farmers were claiming their best crops on record. Others were still reacting to the heat that had hammered the Midwest. This introduced the term “variability” to the conversation both in the corn and soybean complexes.
By the end of the year, yields increased to record levels: 175.4 bushels per acre, a figure that topped last year’s number by 8/10ths of a bushel.
Of course, the U.S. isn’t the only major producing region that has affected prices across the globe. The latest WASDE report indicates about a 30.8 million-tonne drop in international corn production from 2016/17 to 2017/18.
Though U.S. represents a large drop, we see production declines forecasted across South Africa, the Black Sea states, China, the EU, and Brazil. Only Argentina is signaling an increase year-over-year.
However, it’s worth noting that we’re still hovering near record levels of production and ending stocks. Nearly half of all global grain production in 2017/18 was corn!
Clearly, there isn’t going to a shortage of corn anytime soon.
What About Corn Demand in 2017?
With the world awash in corn, what is the world to do?
For many countries – the answer is to simply burn it all. (And no, Taylor Swift had no influence on the writing of this article)
This year featured a dramatic commitment around the world from nations on the ethanol cause. Changes to renewable fuel standards were key policy discussions in the United States, Canada, Brazil, and the European Union. But nowhere was the effort more critical than China.
China announced its plans to introduce a plan to rollout ethanol in gasoline across the country by 2020. The plan is dramatically reduce the country’s existing corn supply through industrial use – all while reducing the crippling smog that has plagued its major cities.
But if China is serious about putting a 10% blend in every gallon, it will have a lot of work to do. The country will either have to ramp up production capacity. We’ve covered this story since the announcement and since then, have looked at the deeper impacts of the Chinese ethanol policy in our GrainCents tool.
According to S&P Global Platts, the country currently has the capacity to produce about 1 billion gallons of ethanol. Analyst Peter Meyer argues that the nation would need to increase this production by at least a factor of 10 in order to fulfill its E-10 mandate.
According to data from the National Bureau of Statistics, China will have to produce an extra 12 million tonnes of ethanol, a figure that requires about 36 million tonnes of corn. Even at current capacity, the country would only see about a 30% to 35% gain in production and fall well short of its target.
With fewer than three years to implement this sort of law, the only logical explanation is that the country is going to import a significant amount of ethanol from other countries (hint, hint: The United States).
The expectation, however, is that China will overtime be able to support its own production needs. Its purchase of Syngenta will help fuel an improvement in corn hybrids being used in the years ahead.
We’re very cognizant to remind you though that Chinese ethanol production goals don’t start up for another 3 years. Thus, we remind you that corn prices didn’t pick up in 2017 and won’t pick up in 2018 or 2019 because of China’s new ethanol mandate.
Get Your 2018 Corn Outlook Right Here
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