The great corn price debate: Importance of ending stocks and stocks to use percentage

You’ve probably heard the very different price forecasts for the 2018-19 corn crop: anywhere from $4 to $8 a bushel has been in the news headlines over the past few weeks. You might be wondering why there is such a large discrepancy between the ranges of price possibilities. The answer lies in ending stocks and stocks to use percentage.

Global demand for corn has increased over the past few years thanks to multiple years of low prices. Those low prices occurred because of years of bin busting harvests around the world. But now we are coming to a cross roads where, because of those low corn prices, corn demand has increased. In fact, demand has increased so much that we are finally starting to use up those large global stockpiles (ending stocks) of corn.

How to calculate the ending stocks to use percentage and its importance

When you compare both the ending stock, along with the stocks to use ratio against previous years, this percentage number is a fantastic indicator of whether current ending stock levels are at historically small amounts (and justification for higher prices) or plentiful (often times when prices move lower). You’ll also be able to anticipate how low a price move might go, or how high a price move could run. Thus, ultimately helpful with your farm market scenario planning. To calculate the Stocks to Use ratio, take the ending stock number, divided by the total usage number, which can then be expressed as a percentage.

The chart emphasizes that point. The darker bar indicates the sufficient supplies of old crop corn ending stocks and stocks/use ratio. The lighter bar indicates the current USDA information for the 2018-19 crop year. The stocks to use ratio for the 2018-19 crop year is currently estimated at 11.5 percent, which is significant. It means that every single weather forecast will be monitored significantly this summer. Expect market volatility. And look at the years when the stocks/use ratio was lower than 11.5 percent…and remember the price action we saw in those years.

Summary

When market scenario planning, it is essential to be aware of the possibilities that prices can work either higher or lower to be ready to capture opportunities and minimize price risks. By having a fundamental understanding of supplies, demand, ending stocks and the stocks to use ratio, it empowers you to be able to make better marketing decisions for the current marketing year. It also allows you to think outside the box at possibilities in the future. As you know, having the upper hand on possible price scenarios allows you to have more consistent marketing, thus keeping your farm on top.

Be ready for anything. Perfect weather this summer or an increase in acres would make the ending stocks larger (due to more supply), and keep a lid on price. On the flip side, adverse growing conditions could potentially lead to sharply lower ending stocks and an even lower stocks to use ratio, lending to a significant price rally.

Editor’s note: Naomi Blohm is a marketing advisor with the Stewart-Peterson Inc. and she is a regular contributor to the Iowa Public Television series “Market to Market.” She can be reached at [email protected].