What’s Next? Consuming the Record-setting U.S. Corn and Soybean Crops

USDA’s Nov. 9 Crop Production report revealed another record-setting corn and soybean crop would be harvested in 2017. USDA projected the 2017 corn yield at a new record high of 175.4 bushels per acre, up 3.6 bushels from the Oct. 12 estimate, and 0.8 bushels above last year’s record of 174.6 bushels per acre. If realized, the record corn yield would result in total corn production of 14.6 billion bushels, down 3.8 percent from last year but still the second highest corn crop in U.S. history.

Soybean yields are projected at 49.5 bushels per acre, down 2.5 bushels from last year’s record. However, due to record soybean acreage planted and harvested, total U.S. soybean production is projected at an all-time high of 4.4 billion bushels, up 3 percent from the prior record of 4.3 billion bushels established in 2016, Figure 1.

With both corn and soybean crop sizes firmly in record-setting territory, attention now turns to the pace of consumption, harvest progress, growing conditions in South America, and, ultimately, domestic and global ending stocks for the 2017/18 marketing year.

Corn Consumption

Consumption of these record-setting corn and soybean crops will play a key role in driving price expectations throughout the marketing year. USDA is currently projecting corn consumption at 14.4 billion bushels, down 1.4 percent from the record-high consumption observed during the 2016/17 marketing year. The largest consumption category for corn is food seed and industrial use, i.e. ethanol. Representing 48 percent of total use at 6.9 billion bushels, food seed and industrial use is up 0.6 percent from the prior year, but also an all-time high. Of the total, USDA is projecting ethanol use at 5.475 billion bushels, up 36 million bushels from the prior year. The second largest consumption category is feed and residual use, representing 40 percent of total consumption. Driven by production expansions in red meat, poultry, dairy and eggs, USDA projects feed and residual use at 5.6 billion bushels, up 2 percent from last year and the highest total since the 2007/08 crop year. Finally, USDA is projecting for corn exports to fall sharply in 2017/18 to 1.9 billion bushels, down 19 percent from last year, Figure 2.

With consumption expected to fall short of production for a fifth consecutive year, ending stocks are expected to continue building. USDA is projecting ending stocks at 2.5 billion bushels, up 8.4 percent from last year and the highest level in 30 years. If these consumption and production numbers are realized, the stocks-to-use ratio would climb to the highest level since 2004/05 at 17 percent. With rising production and inventory levels, USDA is projecting the marketing year average corn price at $3.20 per bushel, down 16 cents from 2016/17 and the lowest price since the 2006/07 crop year.

Soybean Consumption Record High

USDA is currently projecting soybean consumption at a new record high of 4.3 billion bushels, up 2.7 percent from the previous record set during the 2016/17 marketing year. Driven by surging Chinese demand, the largest consumption category for soybeans for the last three years has been exports. A recent Market Intel reviewed Chinese soybean demand, China’s Insatiable Demand for Soybeans. USDA is projecting soybean exports at a record 2.25 billion bushels, up 3.5 percent from the previous record set last year. Soybeans crushed to produce soybean oil and soybean meal is also estimated at a new record high. USDA projects soybean crush at 1.9 billion bushels, up 2.2 percent from last year’s volume. Finally, seed and residual use is projected at 136 million bushels, down 3.5 percent from last year, Figure 3.

Similar to corn, soybean ending stocks are expected to climb following the record-setting crop. Ending stocks are projected at 425 million bushels, up 41 percent from 2016/17. If these consumption and production numbers are realized, the stocks-to-use ratio would climb to the highest level since 2006/07 at 10 percent.

Despite record consumption, USDA is projecting the marketing year average soybean price at $9.30 per bushel, down 17 cents from 2016/17.

Implications

With more than 40 weeks remaining in the marketing year, a considerable amount of uncertainty remains. The pace of consumption in exports and other consumption categories is often an early indicator of year-ending crop prices.

USDA’s weekly export data reveals 763 million bushels of corn committed for export as of Nov. 2, 2017. This total is down 22 percent from the same time last year and suggests corn exports are facing additional headwinds that may result in a lower export volume than currently projected. Similar to corn, soybean exports are also starting at a slower pace than last year. Total soybean export commitments as of Nov. 2 are 1.157 billion bushels, 13 percent lower than the same time last year. At this point in the marketing year, both corn and soybean exports need to accelerate to meet USDA’s projection.

Year-to-date ethanol production, based on weekly production data from the Energy Information Administration, stands at 72 million barrels, up 3.6 percent from the same time in 2016. This pace of corn consumption for ethanol and other uses was confirmed in USDA’s Nov. 1, 2017, Grain Crushing and Co-Products Production report. USDA estimated corn consumed for fuel alcohol at 448 million bushels in September, up 2.8 percent from last year. Soybean crushing was also ahead of pace in September 2017. USDA’s Nov. 1 Fats and Oils: Oilseed Crushings, Production, Consumption and Stocks report indicated soybeans crushed for crude oil was 145 million bushels in September, up 5 percent from the same period in 2016.

With the pace of exports below projections and grain and oilseed crushings above expectations, the outlook for total consumption remains uncertain. One thing is for certain: these consumption estimates will change. Higher consumption volumes could result in lower than projected inventory volumes and higher prices. Similarly, lower consumption volumes could put additional pressure on prices to move even lower. For growers, an opportunity to market your crops at higher prices could present itself if the pace of consumption accelerates or a supply hiccup is experienced elsewhere in the world.