#1 The US Corn Area Planted
The first official corn acreage estimates in the United States for the marketing year 2016/2017 shocked the market. Indeed, after the corn planted area was estimated at 90 million acres at the annual Ag Outlook Forum in the end of February, very few expected to get the 93.6 million acres figure in March.
Source of data: USDA
Judging from the history of recent years, USDA March acreage assessment exceeds the final figures by one million on average. However, even if we base our calculations on the figure of 92.6 million acres, the total corn production in the United States can reach the mark of 14,213 million bushels if the yield trend is conserved.
Given the formed carry-over and forecasted consumption levels, the ending stocks in 2016/17 can reach 2.35 million bushels. (59.7 million tons). This is 26% higher than the estimated ending stocks of corn in the United States in 2015/16 and will break the record of 1988.
#2 Stocks in the United States
According to USDA report released on March 1, the corn stocks in all positions in the United States totaled 7.81 billion bushels. This figure is second only to the record of 1987.
#3 The global balance of corn supply and demand
Based on the projections for the 2015/16 marketing year, the global corn market stock-to-use ratio amounted to 19.3%. It almost reaches the record value for the last 10 years, while corn futures price in 2009 reached the level of $3.2 per bushel with a significantly smaller stock-to-use ratio.
Analyzing the value correlation model of stock-to-use ratio and the corn futures prices, it becomes even more surprising that the corn futures price still manages to stay at the current level.
#4 The Corn-Wheat Spread
In April, the difference in the cost of wheat and corn futures was reduced to $0.9. This is the minimum value for the last 3 years. This is not advantageous for corn, since, with a little price difference, the stockbreeders tend to increase the share of wheat in the diet of animals because of its better nutritional qualities.
According to April estimates of Energy Information Administration, the stocks of ethanol in the United States are at the level of 23 million barrels. This is the maximum figure for the entire data reporting period (starting from 2010). The production of the ethanol in the United States in 2016 is kept at the level of 1 million barrels per day and I think it is unlikely that it would grow, stimulating the demand for corn.
According to Bloomberg, in 2016, in spite of the lower corn prices, the ethanol producers in the United States are losing about a penny on every gallon - this is the worst indicator of returns over the past 4 years.
There is an article from April 7 on Reuters website, the author of which, in my opinion, managed to reflect the difficulties that the ethanol industry in the United States is currently going through.
According to the COT report for the week ending April 12, the net short position of funds equaled to 136,705 sold contracts. It should be noted that almost the entire 2015/2016 marketing year the net position of the funds was negative, fixing the long-term record at the level of 229,176 sold contracts.
Source: Saxo Group
It is an axiom that the corn market depends on the weather. And all the above-listed factors can easily be mitigated by significantly deteriorating weather in the United States, Brazil or Argentina. In this case, in my opinion, now the market price for corn is already based on the assumption that such difficulties will definitely occur. Therefore, if, as the summer is approaching, the weather does not demonstrate substantial deterioration, the corn futures price will not only reach the previously projected level of $ 3.4 per bushel, but will drop to a lower level.
Unless otherwise noted, all charts included are my own.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.