Producers' Watch

World Corn Stocks-To-Use Lowest since 2010/11


Stocks-To-Use Ratio:

The Stocks-To-Use Ratio is represented by the following formula:

Beginning Stocks + Total Production - Total Use
Total Use

or simply stated: Ending Stocks divided by Total Use

Corn:  Interestingly enough, the latest Stocks-To-Use Ratio on World Corn at 14.15% is the lowest it's been since 2010/11 and rivals 1973/74 levels at 12.7%.

What's different?

On the Bear Side:

  • Largest yields on record in the US for both Corn and Soybeans
  • Trade Disruptions due to retaliatory tariffs, primarily between the U.S. and China
  • A large unknown (or unreliable) amount of corn stocks in China

On the Bull Side:

  • Global Corn Usage is estimated at 1.099 billion metric tons (largest on record)
  • Large declines in production from both South America and Russia/Ukraine
  • Strongest Demand Base in history

World ES Corn

 

It's as if two forces are waging war against one another and as of today, at least, the Bear side is winning.  I know of some farmers who are concerned that next year's crop will be even bigger and are considering hedging some of their 2019 crop.  This is the 5th consecutive year of low market average prices.  I've read articles recently where debt-to-asset ratios are creeping up to levels previously seen in the 1980's for some of the largest farms, which is troubling.  That being said, I am encouraged, as just last week I sat by a father and son in Nebraska City, and the father shared that his son was leaving his job in town to join the family farm and eventually take over the reigns.  Together, with a friend of mine, we encouraged the young farmer and let him know our thoughts that better times are ahead in agriculture.  We told him that we thought he was making a smart move and wished him the best!

It is going to be a big crop this year.  I recommend farmers do their own yield estimates to get an idea of how much they will need to deliver at harvest in excess of their own on-farm storage.  In a previous blog post, I've discussed strategies and ways to gain more time, while receiving much needed cash flow.  You can review this blog by clicking HERE.

Soybeans:

Stocks-To-Use Ratios on Soybeans tell a much different story than that of Corn; however, it is interesting to compare the two.  Both U.S. and World Ending Stocks on Soy are at record levels, with U.S. Ending Stocks at 785 Million Bushels and a Stocks-To-Use Ratio of 18.4% (up from 7.2% in 16/17), World Ending Stocks are at 105.94 MMT and a Stocks-To-Use Ratio of 30%.  It certainly appears that we have burdensome supplies and points towards the low price levels we have today.

China's demand for U.S. Soybeans has been insatiable year upon year.  It wasn't until this year (due to trade wars) that our exports to China have slowed dramatically and they turned to South America to meet their immediate needs for Soybean imports.  South America is struggling to meet the demand to China and many believe China will have to come back to the United States to meet their needs sooner rather than later.  As I've mentioned previously, one tweet showing progress in trade negotiations with China and one might expect a significant rebound in Soybean Futures prices at the CME Group.

In the meantime, basis levels are extremely wide on Soybeans in the U.S. due to a lack of export demand coupled with an estimated huge crop coming in both corn & beans when storage space (both on-farm and commercial) is limited.


Strategy:

A change in strategy at this point in time is hopefully just a slight modification due to high yields to a plan that was written and implemented long ago.  Ideally, farmers will be delivering grain at harvest against forward cash sales that were made previously at profitable levels; however, if one is in need of a strategy today because there is a large percentage of unsold bushels at today's low prices...first look at your cash flow needs, then at local storage availability and/or alternatives. 

Many farmers will sell just enough Cash Grain to meet their immediate cash flow needs and then store the rest.  If that doesn't work for you, reach out to a Merchandiser now to inquire about Commercial Storage or DP (Delayed Price) Charges, Basis Contracts and/or Minimum Price Alternatives that allow for upside potential through a specified time frame that's suitable.  Be sure to compare the monthly costs of commercial storage or DP vs. the investment of a Minimum Price type contract through the same time period in which you might store the grain (e.g. - from harvest delivery through March or June of 2019) and remember to take the Basis vs. the deferred futures month into account.

Remember, the advantage of commercial storage or DP vs. other cash grain strategies is that you have upside potential in both Futures and Basis levels after you've delivered the grain (you also have downside risk on both as well).  The advantage of Basis Contracts or Minimum Price Alternatives is that many commercial elevators will provide an advance for much needed cashflow (after the grain has been delivered and the Basis has been set) and you still have upside potential based solely on the respective futures month.  The disadvantage is that you will no longer be able to participate in Basis appreciation.

Check out Gavilon's Producers' Edge program to market a portion of your grain.  I hope you have a safe and bountiful harvest!

 

News, commentary, data, charts, research reports, ratings and analyst opinions and other information provided on this page are the opinions of the authors and intended for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell, or a recommendation or endorsement by Gavilon of any product, service or investment strategy. Gavilon makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from its use.


 

Rob Huston, Vice President

Written by Rob Huston, Vice President

Vice President, Origination at Gavilon Group, LLC. An innovative leader with a successful background in risk management, sales & digital marketing, futures, options and OTC Derivatives. More than 20 years of successful, progressive experience with a demonstrated performance record and diversified management expertise.

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