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VOLATILITY: If USDA is right and a smaller world corn crop is on the way — with fewer end-of-the-year supplies — more volatility also could be on the way.

Volatility coming to the corn market?

Lower corn acreage in China and the U.S. could sharply reduce ending stocks, making the market more sensitive to weather on both sides of the world.

USDA expects a smaller world corn crop and fewer end-of-the-year supplies this coming year, which could cause some market volatility if there are weather problems or other issues.

USDA projects the world corn carryout at 195.27 million metric tons, which compares with the current year’s 223.9 million mt.

“The number for corn that really popped out of the report comes on the world carryout side,” says Farm Futures senior grain market analyst Bryce Knorr. “Lower acreage in China and the U.S. could reduce projected ending stocks sharply and make the market more sensitive to weather in both countries. China, of course, has huge inventories, but the quality of this grain is suspect.”

Along with the smaller world crop, demand should be up with 50 million more U.S. bushels going for ethanol. Importers such as Egypt, Europe, Iran, Mexico, Saudi Arabia and Vietnam will be buying more, USDA reports.

In the U.S., 2017-18 corn ending stocks are forecast at 2.11 billion bushels, down from this year’s nearly 2.3 billion due to fewer acres and lower yields. USDA also estimates a 2% drop in use, while lower exports should more than offset an increase in domestic use.

“I think the carryout could be lower than expected; the government has plugged a very low feed-usage number into its equation,” says Knorr.

“Many of these numbers are just statistical guesses right now, so nothing is written in stone. Growers should continue to sell bumps in corn to whittle away at inventory so they can focus on new crop pricing opportunities when and if they come,” he adds.

Barges and trains moving again
The mid-Mississippi River near St. Louis reopened in mid-May after being closed for about a week due to high water and flooding. The closure halted barge traffic up and down the river, which deprived Gulf of Mexico terminals of grain and grain terminals upstream of empty barges for loading.

On May 11, the CME canceled the force majeure for a majority of elevators on the Illinois River. The force majeure was applied May 4 on corn and soybean deliveries on the river. That action allowed delivery elevators exemptions from the three-day requirement to load out requested deliveries.

Trains also were affected in the Midwest as flooding damaged tracks or inhibited movement. USDA’s weekly Grain Transportation Report said by mid-May railroads affected by the flooding were slowly resuming service. Most of the disruptions were in Missouri, from St. Louis and south.

The disruption to barges and trains caused a sharp drop in grain export shipments, which were down 25% during the week of May 4 compared with the prior week.

Wheat: Less production, more supplies
World wheat production should be down because of smaller crops in the U.S., Australia, the Black Sea and Canada, but when all of the flour is made and the animals are fed, there will be about 1% more left over at the end of next year than there was this year.

That is probably why U.S. hard red winter wheat prices were unable to hold above the $4.70 that was posted shortly after a late-April snowstorm flattened fields in western Kansas. Since that May 2 high, prices trended lower, and two weeks later were flirting with $4.20.

The Commodity Futures Trading Commission report that followed that rally showed much of the buying was by hedge funds, which ended the week with a net long position in hard red winter wheat. Based on the swift drop in prices after that peak, it can be assumed that the net long position was short-lived.

An expected decline in feed use and in a few other demand sectors should offset the smaller world crop and produce the larger year-end supplies. While production should be down, so far most key producers are doing OK.

“There is no major exporting region facing a disaster right now. Conditions in France appear to be stabilizing after a rough start, and rains from northeast France into Germany could go a long ways to maintain production,” Knorr says. “Conditions in Ukraine aren’t as good as a year ago, but there still should be more than adequate supplies flowing out of the Black Sea this summer.”

In addition to the smaller crops in the U.S. and a few other countries, India and Europe should produce more, up 11.5% and 3.8%, respectively. USDA in the May report expected U.S. production down 9%, which included a 25% drop in winter wheat production.

Those U.S. and global numbers came out when about half of the U.S. spring wheat was planted. Spring wheat planting got off to a slow start, but after that May 10 report, it quickly gained traction and was 78% done, which was 5 points ahead of the five-year average. Top producer North Dakota, which was slowed early in the spring by cold and wet conditions, warmed up, and by mid-May had 72% of the crop in the ground, 9 points better than the average.

USDA is expecting U.S. wheat prices of $3.85 to $4.65 per bushel in this 2017-18 crop year, compared with $3.90 for 2016-17 and $4.89 two years ago.

Burgdorfer is senior editor for Farm Futures.

TAGS: Corn Wheat
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