Corn inventory drawdown; what does it mean for feed costs?

The corn market may have room to run even higher from current levels.   


Dr. Nevil Speer, BEEF Magazine

Nov 19, 2020


Last month at this time, Industry At A Glance highlighted the ongoing adjustments by the World Agricultural Outlook Board to corn carryover. The outlook data was contained within USDA’s monthly WASDE report (World Agricultural Supply/Demand Estimates).


At the time, USDA had ratcheted down carryover estimates from 3.318 billion bushels in May to 2.167 billion bushels in the October report. Accordingly, carryover had been reduced from around 22.5% of total use. projected to be 14.8 billion bushels in May, to just under 15% in October, with total use reduced to 14.6 billion bushels. 


That was followed up by a column noting the corn market is in the midst of a contra-seasonal bull run:  “Most significant, market prices are defying normal patterns: that is, the market usually works from spring/summer highs into negative territory as we go into harvest. 


“That regular trend is largely supply driven; producers begin to actively market corn to make space for the new crop – thereby driving prices lower around harvest.” But prices in 2020 have surged higher while we’re in the midst of harvest. 


Fast forward to the November’s WASDE report. USDA slashed yields by 2.5 bushels per acre, thereby reducing total production by 215 million bushels, down to 14.507 billion bushels.   Simultaneously, total use was projected upward, due to growing export projections, by 250 million bushels, to 14.825 billion bushels. The net outcome being total carryover was reduced by 465 million bushels to 1.702 billion bushels. 


More important, that carryover level represents around 11.5% of total use (14.825 billion bushels). USDA also raised the average farm price from $3.60 per bushel to $4 per bushel. 


This week’s graph provides some historical perspective of the relationship between ending stocks/use versus price. Based on final outcome...


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