Fundamentally Speaking

Stocks to Use Ratios vs. Avg Corn Price

Joel Karlin
By  Joel Karlin , DTN Contributing Analyst

The USDA's first look at the 2015/16 season both globally and domestically was seen this week with the corn figures about as expected.

Lower acreage and a decline in yields from last year's record is seen resulting in a corn crop about 600 million bushels less than a year ago.

This is almost completely offset by beginning stocks over 600 million greater and demand next year projected 138 million bushels higher.

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As consequence ending stocks this year are pegged at 1.851 billion bushels vs. 1.746 billion this coming season resulting in stock to use ratios of 13.6% and 12.7% respectively.

A similar situation is seen with the world figures as ending stocks for 2015/16 year are pegged at 191.94 million metric tons vs. 192.50 million this year leading to a respective stock to use ratios of 19.7% and 19.4%.

This graphic shows the world and U.S. corn stocks to use ratio for the past 25 years along with the average spot futures price for each marketing year using the daily average from September 1 to August 31 in dollars per bushel with this year's average going through May 12th.

With the U.S. and global stock to use ratios forecast close to this year's level, one could make a strong case that the average spot corn futures from October 1, 2015 to September 30, 2016 should average close to this year's $3.84.

Note that a 13.9% U.S. stock to use ratio back in 2008/09 resulted in an average futures price of $3.91 dropping to $3.70 per bushel the following year when the stock to use ratio was 13.1%.

The USDA has pegged the average corn price for next year at $3.50 per bushel, down 15 cents from this year's projected average.

As a final check, a regression model forecasting futures prices based on the U.S. and global stock to use ratios that explains 56% of the variability in futures prices is forecasting an average futures price of $3.81 per bushel.

(KA)

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