Analyst: 4 Billion Bu. Ending Stock Possible if Big Crop, Less Ethanol

Grain Markets 042820

Ethanol plants are remaining idle across the U.S. due to lack of demand and COVID-19 issues. The problem is bleeding into the corn market across the board.

“As Americans stayed at home and we started driving fewer miles, as much as 53% fewer miles, ethanol usage started to come off the rails,” says Dan Basse with the AgResource Company. “Crude oil prices dropped and we were left with this oversupply.”

Basse says AgResource estimates the industry has now closed roughly 51% of its plants.

“If you think about it in on a month-to-month basis, that’s about 250 million bushels of corn that we are not consuming,” says Basse. “[As] Months and months go by, that starts to add up. We think by the end of summer or early fall, maybe 1.1 to 1.3 billion bushels of U.S. corn will not be consumed by ethanol.”

Basse says stocks are already a large number. However, he thinks farmers may potentially have larger problems to solve if corn acres are high and ethanol demand stays low.

“Let’s say farmers plant 96 million acres of corn, one million acres less than NASS told us last month, that ends up being an ending stock total of 4 billion bushels,” says Basse. “We have not seen that kind of ending stock total in corn going back to the 1980s or mid 1980s.”

He believes prices will likely come down unless there is a severe weather problem. It’s still a question how far they could drop.

“The buyer’s last resort is a CCC [Commodity Credit Corporation],” says Basse. “That’s a low-level every farmer is eligible for at $2.20 per bushel. That means Chicago futures could make it down to between $2.50 and $2.80 per bushel.”

Basse says if this happens, it’s going to take time because there’s no one solution. He says the Brazilian farmer is looking at record profitability on the safrinha crop because of currency.

He says the supply pressure will be with the U.S. farmer for many months or potentially years.

 

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