Ethanol Picture Starts to Improve and Corn Prices Remain Above $3

USFR-RT1 05.16.20
USDA’s adjustments in WASDE this week were encouraging to Matt Bennett and Joe Vaclavik. They explain why in Markets Now. ( )


USDA released its May WASDE report this week. As expected, the report revealed a possible record corn crop in 2020 and a new crop carryout above 3 billion bushels. At 3.3 billion bushels, if realized, this would be the largest corn stocks since the 1980s.

“If you know anything about even the most basic things about USDA methodology, you knew that that number was coming,”  says Joe Vaclavik of Standard Grain. “I thought that the old crop corn number was kind of encouraging with the ending stocks projection for the end of the current marketing year a little bit lower than expected. They did cut some more demand from ethanol, but added demand via exports and via feed demand. They actually took a few bushels off of last year's crop, as well.”

USDA’s adjustments in WASDE this week were also encouraging to Matt Bennett of, especially the increased feed usage.

“I thought feed usage could be an interesting dilemma, especially with some of the test weight issues we've had around the country,” says Bennett. “Whenever you look at some of the packing plants closing and some people who are still feeding animals, a lot of those are going to a heavier corn ration. I think that there's a fair amount of reason to believe that that feed usage number could even creep a little higher.”

Bennett says the tone was extremely bearish heading into the May WASDE, with many analysts expecting an overly bearish report. He says the fact some positive adjustments were made for feed usage, means the report produced some encouraging numbers moving forward.

“I was encouraged with the old crop, and I think that's part of the reason why we saw new crop down only a few cents,” says Bennett. “It certainly could have been worse. It was an encouraging report compared to what I think a lot of us were worried with what might happen.

Vaclavik says while adjustments to feed usage was a positive for old crop, he thinks more changes could be in store, especially for new crop corn.

“Keep in mind that when it comes to those new balance sheets and you're talking about that 3.3 billion bushel carryout that was projected, they are trying to project or guess what sort of demand will occur in the calendar year beginning on September 1st of this year running through the end of August next year; that's a long way out,” says Vaclavik

He says there are a lot of factors that can change in a year’s time, especially when you consider the volatile ethanol picture. However, the ethanol situation is starting to show signs of improvement.

“We've seen a drawdown in ethanol stocks the last two or three weeks,” says Vacavlik. We've seen ethanol production improve a little bit. We see gasoline production improve a little bit. This is not something that's going to remain stagnant. These balance sheets, especially the new crop balance sheets, they're moving targets.”

With the ethanol picture starting to improve, and corn prices remaining above $3, Bennett thinks the corn market is starting to show some positive signs.

“I believe we had every reason to take May corn below $3.00 in the last 10 days, we've made a couple of runs at it, and we didn't do so. At this stage of the game, we went through 10 million more bushels of corn than what we did two weeks ago on corn usage for ethanol. Seasonally, we're entering into a time where you typically can see some sort of rally potential. Now, obviously, this year is a bit different than a lot of the years that we've dealt with in the past with some of the demand destruction from ethanol, but I do think that at this point, expecting further downward movement in the market would have to come later rather than sooner.”

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