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Earlier this month, USDA gave an insight into their initial projections for the 2024-25 marketing year, which seemingly fueled the most recent leg lower to fresh contract lows in old-crop and 28-month lows for new-crop futures. In order to properly grasp how meaningful USDA’s initial look is, it’s necessary to look at year’s past to see how those initial projections held up.
For four years now, USDA has pegged initial corn acres at 92 million or 91 million acres. Acreage estimates for the last ten years have been too high five times and too low five times when compared to final acres, the difference over that time averages 2.3 million acres. That leaves quite the range for this year as USDA projects 2024 seedings at 91 million acres. The greatest risk at this juncture is acres coming in above USDA, which many analysts suggest is almost certain. The soybean/corn ratio for new crop remains relatively high, which suggests producers will favor soybean plantings over corn. One only has to look back to 2021 for an even greater disparity between soybean/corn prices. Even then, producers heavily favored corn with soybean acres at 87.2 million acres and corn acres at 93.4 million acres. Given ideal planting conditions, producers have shown to favor corn, even if soybeans may make more “economic” sense.
USDA has projected yield too high in each of the last five years, though yield beat trend the prior five years. A short-term view would render a more bearish view on yield despite the long-term trend remaining quite neutral. Yield posting a record in 2023 despite a far from ideal growing season is a testament to seed genetics, especially considering the abundance of acres outside of the Corn Belt, which historically will drag the national yield lower. Production projections have remained relatively steady in the low 15-billion-bushel range as trendline yield has stagnated over the last eight years. Production in 2023 topped USDA Outlook Forum projections for the first time since 2017.
The supply side of the balance sheet fell within most analysts’ expectations. The demand side of the balance sheet was disappointing. Exports are seen as rising modestly from 2023-24. One would expect falling prices to draw additional export demand, which has occurred in recent weeks, though concerns over cheap Brazilian corn continuing to take market share from the U.S. remains, as has been the case in recent years. The export forecast for 2024 is the lowest since 2020. USDA has projected exports too high in three of the last five years (omitting 2023 as the crop year is ongoing), similar to the neutral long-term bias.
Feed use is projected just 75 million bushels above the current USDA estimate for 2023-24. The estimate for the current crop year is low compared to recent years. One could argue that the shrinking cattle herd and wheat as feed both are reducing feed use in corn, though it still seems too early to expect such a drop. Feed use is down from the early 2020’s when exports and prices were higher, expecting feed use to remain at depressed levels despite cheap prices is too pessimistic. USDA has overestimated feed use in four out of the last five years and eight out of the last ten years (omitting 2023). One has to go back to the early 2000’s to see USDA consistently overestimating feed use. USDA seems to be aware of this bias, being cautious with their 2024-25 outlook.
Ethanol use is projected to rise modestly from the current USDA estimate for 2023-24. Cheap prices and relatively cheap fuel prices have led crushers to ramp up production to levels not seen since 2017. USDA sees that trend continuing throughout the 2024-25 crop year as ample supplies keep pressure on corn prices, encouraging crushing. Similar to feed, USDA is apt to project too high of ethanol use in their Outlook Forum. USDA has estimated ethanol use too high in four out of the last five years (excluding 2023, which looks to outpace the Outlook Forum estimate). A large portion of that change can be attributed to higher prices, Covid lockdowns, and increased export demand from Trump’s Phase 1 agreement with China. Ethanol use has seemingly “topped out” near 5.4 billion bushels, aside from extraordinary use in 2017, which capped 5.6 billion bushels. It is reasonable to believe ethanol use could top the Outlook Forum projection, but USDA seems to be hesitant here as well.
Overall, recent years have shown USDA to be too optimistic on production and too optimistic on use. 2023-24 is disrupting that trend, with both production and use looking to top last year’s Outlook Forum estimates. USDA seems to have accounted for their optimism in use, with pessimistic projections for 2024-25. The depressed use figures in recent years can likely be largely attributed to high prices. As the adage goes, the cure for high prices is high prices. Use is likely to pick up beyond what USDA foresees, as the cure for low prices is low prices as well. Demand has already shown signs of picking up, particularly in export and ethanol, both of which have timely reports to track such changes. Demand is likely to pick back up to similar levels seen in the late 2010’s when supplies and prices were closer to what they are now, rendering the Outlook Forum projection of ending stocks of 2.532 billion bushels as too high.
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