Chicago corn futures recorded a further loss in 2016 – making it a fourth successive year of decline, something not seen in more than 50 years.
In fact, futures recorded their lowest finish to a calendar year since 2005, with prices weighed by the boost to supplies from another record US crop, which more than offset support to values from a weaker-than-expected Brazilian safrinha corn harvest.
Still, after 2005, corn prices went on quite a rally, rising in five of the six following years.
Will low prices be the cure for low prices this time, in persuading farmers to cut corn acreage? Or will the market be depressed by a, likely, improved Brazilian safrinha crop?
Experts give their views on the prospects for corn prices in 2017.
Stocks that are expected to be record-high on a global level and at their highest level in decades in the US by the end of the 2016-17 season are likely to weigh on the price for some time yet.
Q1: $3.50 a bushel
Q2: $3.60 a bushel
Q3: $3.70 a bushel
Q4: $3.80 a bushel
Forecasts for Chicago spot contract, quarter-average price
The latest increase in the blending requirement for biofuels added to conventional fuels – primarily ethanol in the US – is also likely to support the price, assuming that it is not reversed by the government to come.
This is because it is still the case that the global stocks-to-use ratio will hardly improve in 2016-17 despite the record crop, and could decline rapidly in the event of a disappointing 2017-18 crop.
We envisage an October-to-December quarter 2017 corn price in Chicago of $3.80 per bushel.
The energy-intensive corn industry might see its prices recover further in 2017 due to higher projected energy prices.
However, record-high yields in the US and well supplied markets are likely to exert downward pressure on prices.
For the fourth quarter of 2017, panellists forecast a marginally higher average price of $4.02 per bushel.
Despite concerns late last spring that La Nina weather conditions would weigh on growing conditions, the US 2016-17 harvest ended up record large for both corn and soybeans. Array
Three-month outlook: $3.50 a bushel
Six-month outlook: $3.50 a bushel
12-month outlook: $3.35 a bushel
Forecasts for Chicago spot contract
As a result, we expect that under normal weather conditions going forward corn and soybeans prices will decline back to their marginal costs of production over the coming year to limit further inventory builds.
Continued strong soybean demand from China leaves us, however, forecasting that soybeans prices will continue to trade at a historically elevated premium over corn prices to continue to incentivize acreage allocation.
We expect a recovery in 2017 commodity prices as global consumption rises and corn and soybean supplies begin to decline.
With continued low commodity prices, US planted acreage should pull back in 2017 leading to lower excess supplies of major crops.
We expect corn acreage to experience the biggest decline in 2017 as farmers look for ways to cut input expenses and shore up profitability. We believe US farmers could cut 3.7% or 3.5m acres of corn in 2017.
An acreage pullback is unlikely to be an isolated US event. After four successive years of supply increases, next year could prove to be the turning point with a global supply pullback leading to improved pricing.
With commodity prices still low as of late 2016, the buy side of the grain trade is incentivised to consume more. This is supporting global grain consumption, which is expected to rise a solid 4% in 2016-17 and to alleviate record inventories next year.
The ongoing global stockbuilding of corn is forecast to come to a halt in 2016-17, and 2017-18, we expect the first worldwide stock decline since 2009, moving the stocks-to-use ratio to 19%, the lowest in four years.
We need to add clarity to one fact in this equation – China. Due to changes to the corn subsidy policy, the country is expected to cut its stocks by about 10m tonnes n 2016-17 and by about twice as much the year after.
While the overall stocks in the world, excluding China, will remain at a comfortable level, they are expected to shrink 6% year on year in 2017-18.
Assuming normal weather conditions in South America… this should result in an increase of the combined corn crop in Brazil and Argentina of about 26%, or 25m tonnes.
Our base case price forecast leaves Chicago corn prices in a quarterly average $3.40-3.65 a bushel range, pressured by large supplies, and supported by record large demand and continued large-scale farmer storing in the US.
We see limited downside risk for corn due to four reasons. Array
Q1: $3.51 a bushel
Q2: $3.50 a bushel
Q3: $3.60 a bushel
Q4: $3.85 a bushel
Forecasts for Chicago spot contract, quarter-average price
We believe that most of the negative news for corn is already priced in. Current prices are 15% lower than last year's average for the post-harvest period.
We believe that US farmers will continue to refrain from selling corn at or below $3.20 a bushel.
We believe any further decline in corn prices may result in further short covering by managed money due to expectations of a decline in acreage during 2017-18.
Any setback on account of US trade policy with Mexico, a key importer of US corn, and further strength in the US dollar are key negative risks for corn prices in the first quarter of 2017.
Corn prices remain pressured by four consecutive large crops in the US.
After declining to 820m bushels at the end of the 2012-13 marketing year, stocks grew to 1.74bn bushels at the end of the 2015-16 marketing year and are projected at 2.4bn bushels at the end of the current year.
Planted acreage of corn is expected to decline in 2017 in favour of more soybean acres. A 3m-acre reduction and a trend yield near 169 bushels per acre would result in a 2017 crop 1bn bushels smaller than the 2016 crop.
Such a reduction would result in a reduction in stocks by the end of the 2017-18 marketing year.
Prices are expected to average near $3.30 a bushel during the current year and near $3.60 during the 2017-18 marketing year if world production unfolds as expected
By Mike Verdin