The bearish and bullish cases for US corn stocks on Monday -Braun
The opinions expressed here are those of the author, a market analyst for Reuters.
By Karen Braun
NAPERVILLE, Illinois, Sept 26 (Reuters) -Last year’s record-large harvest boosted U.S. corn inventory to multi-year highs, though the actual supply estimates have dwindled notably over the last year because of robust demand.
The situation will be clearer on Monday after the U.S. Department of Agriculture publishes its quarterly stock survey results as of Sept. 1, which represents the end of the 2023-24 marketing year for U.S. corn and soybeans.
The trade often struggles to anticipate these numbers, and this year may be no different as there are valid reasons why corn supplies could land above or below expectations.
Analysts peg Sept. 1 U.S. corn stocks at 1.844 billion bushels, a four-year high and up almost 40% from the recent three-year average. Past results might suggest the heavy supply situation would favor corn bulls.
Aside from 2024, there have been nine other instances since 2005 where the average trade guess for Sept. 1 corn stocks exceeded 1.7 billion bushels. The Sept. 1 outcome was bearish, meaning stocks were larger than expected in only one of those nine years (2018).
The bearish Sept. 1 corn outcomes occur more often when supplies are thin. These observations imply that the trade misjudges demand dynamics when prices are relatively high or low.
However, that relationship could fall through this year because of an unusual adjustment from USDA following the last quarterly stocks report.
Three months ago, USDA revealed heavier June 1 corn stocks than analysts expected. Logically, the trade anticipated this would drive the agency’s 2023-24 ending stock estimate higher in July.
Instead, USDA slashed 2023-24 ending stocks in July by an abnormally large 7%. This was due to increases in both feed and residual use as well as in exports, the latter of which was certainly warranted.
But USDA almost always cuts feed and residual use in July whenever June 1 supplies were bigger than expected, so it is possible that this bearish factor comes back in to play this quarter.
The feed and residual category, which accounts for nearly 40% of annual U.S. corn demand, periodically frustrates traders since the “residual” component is not quantifiable and is therefore the root of many unexpected supply adjustments.
SOME SILVER LINING
Despite this year’s tricky setup, analysts have somewhat safeguarded the market from surprise. The range of trade guesses for Sept. 1 corn stocks is wider than normal, and this is the case for soybeans and wheat, too.
Sept. 1 U.S. corn stocks have landed outside the range of trade guess in five of the last seven years (not 2021 or 2023). Sept. 1 soybean stocks have violated the trade range in four of the last seven years, but Sept. 1 wheat stocks have not done so since 2012.
Sept. 1 soybean and wheat stocks, like corn, are also predicted at four-year highs.
Analysts’ corn stock estimates imply use in the fourth quarter of 2023-24 was the third-highest ever, and recent data could be on their side. Corn used for ethanol was record-high and exports hit a six-year high for the period.
USDA has recently acknowledged the strong U.S. corn export pace, having boosted its 2023-24 export estimate by 6.5% over the last three months, the most for that period in at least two decades.
Corn used for ethanol in 2023-24 is seen falling 2.5% short of 2017-18’s record, but recent ethanol output data suggests the pace may have been better and that the margin could be narrower.
But all this number-crunching could be voided by feed and residual use, which in strong demand years like 2023-24 often drifts lower at the end, possibly presenting an unfriendly close to September for corn bulls.
Karen Braun is a market analyst for Reuters. Views expressed above are her own.
Graphic- Sept. 1 U.S. corn stocks: trade estimates versus trade biases https://tmsnrt.rs/3TMcSvj
Graphic- U.S. June 1 corn stocks versus feed and residual https://tmsnrt.rs/3TJWk7s
Writing by Karen Braun
Editing by Matthew Lewis
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