Every year, USDA releases its 10-year baseline balance sheet projections for U.S. corn and soybeans. These projections are largely used for budgetary reasons inside the agency. Ten-year projections, especially for the distant years, don’t typically carry much weight for the markets because there are so many unforeseen things (i.e. weather, trade wars) that can happen year to year.
However, it is worthwhile to look at the next year as it likely provides some insight into what producers are thinking in terms of acres.
Most of the winter, the private industry has been expecting corn acres to increase from last year’s 89.9 million planted acres. USDA concurred with that in its recent update, using 94.5 million acres in its projections. (The first official estimate for acres will be the prospective plantings report March 31.) If you plug in their trend line yield estimate of 178.5 bushels per acre, that puts corn ending stocks for 2020-21 at a whopping 2.754 billion bushels.
There will be a lot of moving parts in the U.S. balance sheet between now and the end of the 2020-21 marketing year, but for what we expect today, comfortable domestic stocks are a strong possibility through the harvest of 2020. Combine that with another large South American corn crop again this summer, and corn stocks in the major exportable countries will be plentiful.
In years of historically high corn ending stocks, corn futures typically follow the traditional seasonal pattern of higher prices in the late spring/early summer, and lower prices in the fall. Therefore, the traditional average pricing program has worked well the past few years. The included chart illustrates this clearly.
While the outlook for next year does not look overly optimistic for prices, the chart also reminds us that opportunities have existed each of the last few years to price bushels at futures levels above breakeven. December 2020 corn futures have traded in a broad range ($3.88 to $4.10) during the last few months with a contract high of $4.24.
Based on what we know today, a retest of December 2020 corn futures to levels between the recent high and the contract high would suggest an opportunity to have some risk management strategies in place to protect price risk on a portion of your 2020 corn production.