Last week I took a bit of a deep dive into the wheat market fundamentals I am watching, discussing why I would be careful to assume the recent narrative of too much supply and limited demand will remain the focus of the market over the next several months.

This week I want to take a similar look at corn. As I mentioned in last week’s column, the lack of a summer rally caught me off guard as each threat of too much heat or dryness building into the forecast was short lived, helping to lift crop conditions and keep yield expectations high for much of the year. The idea of too much supply and limited demand permeated the market, with many discussing how low corn prices could go even after having lost over $1.18 from the start of the year to September 1st. 

What was most amazing to me about the narrative surrounding corn at the end of the summer was the analysts discussing poor corn demand with a straight face. From the start of the marketing year last September to the most recent update, the USDA has increased old crop corn demand by over 530 million bushels, quietly taking US carryout from 2.221 billion bushels to 1.812 billion bushels in their most recent update, a reduction of 409 million. 

Now of course, I’m not going to act like an old crop carryout of 1.812 billion bushels of corn is tight, but a stocks to use ratio of 12% is below the 2000-2024 average of 13.5% and is within shouting distance of where we’ve historically started to see things in the cash market tighten. But it’s not just the tightening in carryout over the last year that in my opinion is most remarkable, it’s that the tightening took place when the world was relatively awash in corn. 

Looking at the year ahead, the global supply picture has the potential to be very different than what we were expecting 12 months ago, bringing with it the possibility that the USDA and many analysts could be underestimating demand. This week I want to break down the things I’m watching around the world that could impact corn demand in the year ahead, potentially helping bring with it more in the way of pricing opportunities for farmers than seen over the last few months.  

Global Production

According to the most recent USDA projection, global corn production, not including China, is expected to fall 8.9 mmt, or come in 351 million bushels lower year over year, even with the increase in US production. What is most remarkable about the current USDA projections though, is the spread we are seeing between USDA figures and local estimates. 

While it is not unusual to see some type of spread in production ideas, the USDA is currently over 12 mmt higher than Brazil’s official government estimate. Add to it the 3.5 mmt spread between Argentina’s local estimates and the USDA, as well as a 4-6 mmt spread on Ukrainian production and a 2-4 mmt spread on the EU outlook and things could get very interesting. When looking at where the USDA stands versus local estimates, there is an additional half a billion bushels of production that could be trimmed in the year ahead as they work to reconcile. 

Global Cash Movement

It’s not only the wide spread in production estimates that has my attention, slow farmer movement, quality issues and logistical constraints will have an impact on grain flow and market direction as well. The expectations of reduced production and poor margins has slowed corn movement around the world.

Farmers across the US aren’t the only ones looking to add infrastructure to keep from having to sell into a down market, Brazilian farmers are estimated to have increased their on-farm storage by nearly 20 mmt (787 mbu) over a year ago via grain bags and additional infrastructure. In Ukraine and across the European Union, the production outlook is not only reduced because of less than ideal weather conditions throughout the growing season, we are also hearing stories of widespread mycotoxin issues, with aflatoxin said to be the most prevalent. This is something that could limit the amount of grain able to move into the global pipeline from the region, as mycotoxins are not something any world end user wants to own. 

Argentina farmers are holding tight to their supplies after disease reduced their production outlook in a big way this past growing season, taking production from early season ideas of 60 mmt potential, to a final production figure of around 46.5 mmt according to the Buenos Aires Grain Exchange. Like what we are seeing in soybeans, Argentine farmers are good at only selling what they need to for cash flow, waiting patiently for some type of government program that would help improve currency conversion and add value to their crop. 

Logistical issues remain something to watch but are not only plaguing the US at this point as well, with low river levels causing freight costs to spike along the Mississippi just ahead of harvest. Problems with water levels in both north and south Brazil, Argentina, the EU and the Black Sea will keep things relatively equal when it comes to ease of movement or a lack thereof. 

Global Demand

One of the factors I find most interesting when looking at global cash movement in corn are the changes in domestic demand we are seeing in countries around the world. Brazil’s domestic demand is one of the first to come to mind, with a growing feed industry experiencing positive margins and a government pushing towards a 35% ethanol blend. The strength in local values and river issues has pressured exporter margins, leading to Brazilian offers into the world market that are far less competitive than seen a year ago. 

Brazil is not the only country looking to increase its ethanol blending, India is trying to follow suit. Currently sitting at a blending level of around 15%, the country’s government is trying to push to 20% by 2025. This push will likely lead to India becoming a net importer of corn over the next year, as opposed to a small exporter the last few years. Low prices cure low prices, and we are seeing an increase in world demand as a result, likely leading to increased imports for some, while simply reducing the exportable surplus for others.

The China Factor

All that is happening in the world corn market feels incredibly spicy, even without China involved and how they move forward in the market in the year ahead will have obvious implications on price. 

China’s lack of buying seen over the last 6 months, while disappointing, should not be surprising for a multitude of reasons. Chinese corn imports the last quarter of 2023, and throughout the first half of 2024 were huge, with the bulk of supplies coming in from Brazil and Ukraine. Imports exceeded government estimates by the middle of the summer this year, nearly 4 months before the end of their marketing year. 

Government officials have been doing their best to keep imports limited since spring, working to keep domestic prices supported and farmer confidence high as they battle a deflationary cycle, something that is expected to last through the end of the year. 

I will be watching cash prices across the country closely as farmers work to liquidate the last of their old crop supplies and work to harvest their new crop. The USDA and Chinese government are both predicting record production currently, though there have been rumblings recently that final production may prove disappointing after a volatile growing season. 

Of course, how China tackles their economic downturn and whether we see direct to consumer stimulus or not could be nearly as important, if not more so, than their final production figure.

What Does It Mean?

While the past few months have been far uglier than I ever would have imagined—and that’s saying something considering how bearish I was at the start of the marketing year—I feel like corn could be poised to surprise some people in a big way in the year ahead. 

Yes, the US crop outlook remains incredibly large, but considering the most recent estimate from the USDA is most heavily influenced by the farmer survey, with limited input from weather, satellite data or field observations, we are far from having it in the bin and should proceed with caution in my opinion. When looking at the finish we’ve had across much of the Corn Belt, with an exceptionally dry end to August and start to September, it is very possible the final figure could be trimmed by a bushel or two—nothing huge but still a reduction. 

Over the next 6 weeks, I will be watching how the cash market absorbs the expected heavy push of grain more than anything. Spreads and basis will be the tell when it comes to how crop size and grain flow are matching up against demand. In the end, I know it is somewhat taboo to be bullish corn right now, but I could argue we could see ending stocks closer to 1.5 billion than 2 billion, with the potential for a far more volatile marketing year over the next 12 months than the current balance sheet would indicate.

As always, let me know if you have any questions! Have a great week.