Export demand

By Jon Scheve, Superior Feed Ingredients, LLC

Corn demand from China has increased dramatically over the last few months causing corn to rally $2 per bushel from August lows. This chart shows how unprecedented China’s recent corn import demand has been compared to the last 60 years. 

Source: Matt Campbell

Currently the USDA estimates China will import 24 MMT (Million Metric Tons) of corn from all over the world this year. Some private forecasts indicate it could even exceed 30 MMT (1 MMT = approx. 40 million bushels). To put that into perspective, China has only imported about 75 MMT of corn TOTAL over the last 60 years. 

And for the last 6 years, of the 50 MMT of corn the US exports on average each year, only 2 MMT were sent to China (4%) each year. In the last 6 years the US hasn’t provided even half of China’s yearly import needs. 

Export pace

USDA export predictions have increased from the previous 6-year average of 2 billion bushels (50 MMT) to 2.6 billion bushels (65 MMT) this year. However, Matt Campbell, a risk management consultant at StoneX, suggests these levels might be difficult to sustain in the chart below. 

Source: Matt Campbell

The blue line shows U.S. weekly corn shipments for the last 6 years. The brown line represents where weekly export shipments must average through the end of August to meet the current USDA export estimates. The green line represents where some bullish traders, who think export totals are underestimated by nearly 400 million bushels, need shipments to be. 

The chart above indicates last week’s export pace could continue through August (the end of the marketing season) and hit current USDA export estimates. Meeting the export pace of the green line would be more difficult as that would mean a sustained record shipment pace for over 25 weeks.

What is “normal” for U.S. export shipments?

In the ‘16/’17 and ‘17/’18 marketing years, over 2.4 billion corn bushels (60 MMT) were exported each year, the most ever done in US history. This year the US also expects to export the most beans on record. This means the total corn and soybean export program will be pushed to load out 6% more corn and beans than the previous 2 best years on record. That would be 40% more than was done last year.

And if the bullish predictions happen, export pace would need to be 15% more than the most ever done before, or around 50% more than last year.

Can it be done?

Theoretically it seems logistically possible, but it would put our county’s transportation infrastructures to the test. The recent extreme cold temperatures haven’t helped, because it significantly slows unit trains movement. Elevator managers are telling me loading schedules have already fallen 2 weeks behind. Plus, some locations throughout the river systems unaccustomed to these extreme cold temperatures are seeing ice building up that is forcing barge shipment delays to the gulf.

There were even reports of an ethanol plant in the eastern Corn Belt that had to announce price penalties for shipment by trucks arriving late for the month because farmers don’t want to run their equipment in the cold weather. 

To hit the estimates of the USDA it would seem to require everything working at high capacity for weeks if not months without issues.

What happens if it can’t be done?

If the export pace can’t be met, then the corn will stay in the U.S. and be pushed into the feed and ethanol sectors leading to a drop in prices. Longer term that would likely lead to a bigger carryout this year which would then produce a domino effect into the 2021 carryout increasing as well. It would be a bearish scenario long term.

Most market participants seem to believe that the U.S. infrastructure will be able to handle the record pace this year. It certainly seems likely that everything should work. But history suggests that when most people are all thinking the same thing it’s about the time that everything changes.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

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