Corn inventory drawdown; what does it mean for feed costs?

The corn market may have room to run even higher from current levels.

Dr. Nevil Speer

November 19, 2020

2 Min Read
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Last month at this time, Industry At A Glance highlighted the ongoing adjustments by the World Agricultural Outlook Board to corn carryover. The outlook data was contained within USDA’s monthly WASDE report (World Agricultural Supply/Demand Estimates).

At the time, USDA had ratcheted down carryover estimates from 3.318 billion bushels in May to 2.167 billion bushels in the October report. Accordingly, carryover had been reduced from around 22.5% of total use. projected to be 14.8 billion bushels in May, to just under 15% in October, with total use reduced to 14.6 billion bushels.  

That was followed up by a column noting the corn market is in the midst of a contra-seasonal bull run:  “Most significant, market prices are defying normal patterns: that is, the market usually works from spring/summer highs into negative territory as we go into harvest.  

“That regular trend is largely supply driven; producers begin to actively market corn to make space for the new crop – thereby driving prices lower around harvest.” But prices in 2020 have surged higher while we’re in the midst of harvest.  

Fast forward to the November’s WASDE report. USDA slashed yields by 2.5 bushels per acre, thereby reducing total production by 215 million bushels, down to 14.507 billion bushels.   Simultaneously, total use was projected upward, due to growing export projections, by 250 million bushels, to 14.825 billion bushels. The net outcome being total carryover was reduced by 465 million bushels to 1.702 billion bushels.  

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More important, that carryover level represents around 11.5% of total use (14.825 billion bushels). USDA also raised the average farm price from $3.60 per bushel to $4 per bushel.  

This week’s graph provides some historical perspective of the relationship between ending stocks/use versus price. Based on final outcome of the past 14 years (ethanol era), ‘20/’21 ending stocks/use of 11.5% would result in an average farm price of $4.41 per bushel (NOT $4).  In other words, the corn market may have room to run even higher from current levels.    

As noted in previous columns, it’s critical to keep up with the information flow. This will prove to be a very important story for feedyard breakevens as we progress into 2021: producers need to monitor the market carefully; the corn complex influences every sector in some form or fashion. Stay tuned! 

Speer is based in Bowling Green, Ky. and serves as director of industry relations for Where Food Comes From (WFCF). The views and opinions expressed herein do not necessarily reflect those of WFCF or its shareholders. He can be reached at [email protected]. The opinions of the author are not necessarily those of or Farm Progress.

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