Corn stocks tighten further

As outlined in Friday’s Market Comment, corn is the fundamental driver of all grain and oilseed commodity markets.  Global corn production this year is projected to reach 1,219 million tonnes. In comparison, wheat production is estimated at 793 million tonnes, while other coarse grains are expected to total around 300 million tonnes.  Soybean production is anticipated at 422 million tonnes. We can see that corn accounts for roughly 50% of world grain and oilseed production.

As all crops compete for acres in one way or another, and feed rations can be manipulated based on the price of input grains, corn price is a major driver of all crop prices. Figure 1 shows the latest WASDE data, showing another 3.5 million-ton reduction in corn production, bringing the revised estimate to 1,214mmt. While this is only 5mmt from the original figure, in a tightly poised market it is significant.  Since the USDA couldn’t find similar cuts in consumption, the 3mmt came straight off ending stocks.

The cut in the US crop was even more significant, with 7mmt cut, representing 1.8% decrease, and leading to a 5mmt decline in ending stocks.  The production cut was not entirely expected, and the impact on price  while not extraordinary, was strong.  CME Corn futures have gained around 30¢/bu since the WASDE report was released, and now sits at a two-year high.

With the weakening Aussie dollar, corn is now priced at $306/t in our terms.  As the world benchmark for feed grains, this would be mildly concerning for feed consumers, and obviously positive for producers.

The WASDE number for wheat was more benign (Figure 2) with the tightening trend still in place, but not much movement in the numbers.  With much of the northern hemisphere winter crop still dormant, and spring crops yet to be planted, there is little news to move wheat supply and demand.

While wheat prices did get a small boost from the rise in corn, they remain confined in the range we’ve seen since October (Figure 3).