Supply and demand projections for the upcoming 2023 crop year were released at the USDA’s Agricultural Outlook Forum on February 23. In the March 6th issue of Southern Ag Today, we looked at how close previous projections have been to final USDA estimates for corn, soybeans, and wheat. In this article, we expand upon missed projections and look at how changes in corn demand from the USDA’s projections could affect the stocks-to-use (STU) ratio and, thus, price. The simple analysis gives us insight into the supply and demand dynamics for the upcoming crop year. Specifically, we focus on changes in corn exports. China, the largest importer of U.S. corn last year, cleared more Brazilian firms for corn export on March 6th to ease their dependence on U.S. imports (FAS, 2023; Samora, 2023). Additional access for Brazilian corn to China could reduce U.S. corn exports.
STU is a fundamental indicator in commodity marketing as it compares commodity ending stocks to commodity demand. The impact of missed projections on STU provides insight into each commodity’s supply and demand dynamics. Plot A of Figure 1 shows the STU and marketing year average price for corn by year. The main takeaway from Plot A is that a higher STU indicates lower demand relative to supply and, thus, lower prices, whereas a lower STU shows higher demand relative to supply and higher prices. For example, in 2012, the drought impacted the supply of corn, resulting in lower STU and higher commodity prices.
Plot B of Figure 1 looks at the impact of missed export projections by the USDA on STU. In 2023, the USDA is projecting a 15% increase in corn exports from last year (USDA, 2023). Holding all the other USDA corn estimates constant and changing exports, we find that a 100-million-bushel miss-projection in corn exports would change corn STU by 0.39%.
As the Brazilian corn crop is projected to hit record numbers, increased Brazilian corn exports could negatively impact U.S. corn demand (Donley, 2023). In 2022, China imported 5.26 billion bushels of corn from the U.S. (FAS, 2023). If these numbers were cut by just 500 million bushels, causing the USDA to over-project exports, corn STU could be higher than 2018 levels when the average corn price was $3.61, assuming the other projections are unchanged. The current average corn price for 2023 is projected at $5.60. If exports are cut, and STU increases, the marketing year average corn price will likely be lower than projected. Changes in projected supply and demand will impact STU for corn, and consequently the marketing year average price. Producers and traders should be cognizant of projected changes in STU and use this information as one factor that could influence price expectations for the upcoming crop.
Figure 1. Price and Stocks-to-Use (STU) Ratio by Year and Impact of Missed Corn Exports Projections on STU
Donley, Arvin. “Brazil Expecting Record 2022-23 Corn Crop | World Grain.” World-Grain. Accessed March 14, 2023. https://www.world-grain.com/articles/17791-brazil-expecting-record-2022-23-corn-crop.
Foreign Agricultural Service. “U.S. Corn Exports in 2022.” USDA Foreign Agricultural Service, March 8, 2023. https://www.fas.usda.gov/commodities/corn.
Samora, Roberto. “BRAZIL SAYS 90 FIRMS CLEARED TO EXPORT CORN TO CHINA IN EARLY 2023.” Reuters, 2023. https://www.world-grain.com/articles/17924-us-ag-exports-expected-to-fall-in-2023.
Smith, Aaron, and Grant Gardner. “February USDA Agricultural Outlook Forum Projections Compared to USDA Final Estimates.” Southern Ag Today 3(10.1). March 6, 2023. https://southernagtoday.org/2023/03/06/february-usda-agricultural-outlook-forum-projections-compared-to-usda-final-estimates/
United States Department of Agriculture. “Grain and Oilseeds Outlook,” 2023. https://www.usda.gov/sites/default/files/documents/2023AOF-grains-oilseeds-outlook.pdf.
Photo by Pixabay: https://www.pexels.com/photo/orange-corn-kernels-60507/
Gardner, Grant, and Aaron Smith. “Sensitivity of USDA’s Agricultural Outlook Forum Projections to Changes in Corn Exports.” Southern Ag Today 3(12.1). March 20, 2023. Permalink