I saw where USDA held a virtual users’ meeting recently, where official made up excuses as to why the government keeps making up and revising its quarterly stocks numbers. I have a three-word answer for them, “I don’t care.”
The market has been telling us US corn stocks are tighter than reported for the last four marketing years, and again as we start our way through the 2020-2021 version. At the end of October the cmdty National Corn Price Index (NCPI, weighted national average cash price) was showing a daily average for the marketing year of $3.54, up considerably from the end of September’s $3.34, implying a drop in monthly stocks-to-use to 12.4%. This is the lowest monthly reading since the end of April 2020, and the highest NCPI average since the $3.52 for that same month.
Now for the thought question: Why is stocks-to-use falling as harvest rolls along? Recall the US harvest was estimated by NASS to be 15% complete as of September 28, with the most recent government guess to be 72% completed as of October 25 and the next update possibly showing 90% complete as of November 1. Keep in mind stocks-to-use takes into account all aspects of supply and demand, which is what makes it the key to fundamental analysis. In the case of 2020-2021 corn:
Based on my calculation of 2019-2020 ending stocks-to-use of 12.8%, as compared to USDA’s “final” 14.4%, 2020-2021 beginning stocks were smaller than reported.
Given the continued strength of the cmdty National Corn Basis Index (NCBI, weighted national average basis), we can make the assumption 2020 production is smaller than projected.
The NCBI also suggests demand continues to run stronger than normal with:
- Cattle on Feed for both September 1 and October 1 were reportedly 4% larger than the previous year, with September placements up 7% from the previous year.
- Cash SRW wheat continues to run almost $2.00 above the NCPI, meaning wheat won’t likely replace corn in feed rations.
- Yet in its October Supply and Demand report, USDA estimated feed demand for corn to decrease 7% from the previous marketing year.
- The latest weekly export shipment numbers showed total corn shipments of 241.1 mb (through Thursday, October 22, putting the official marketing year estimate at 1.935 bb as compared to USDA’s October estimate of 2.325 bb.
- The same week the previous marketing year showed total shipments of 142.6 mb
- Ethanol demand for corn remains a huge question mark, possibly depending on the outcome of the upcoming US Presidential Election.
The bottom line is supplies are tighter than reported and feed demand is much stronger than estimated. This is pulling on available US stocks at this time.