September 1 marked the end of the 2016/2017 marketing year for U.S. corn and soybeans. With the “old crop” closing, the USDA conducts its quarterly survey of grain stocks in September. The results of this report – released at the end of September – are important as they represent final ending stock for 2016/2017 and the carry-over, or beginning stocks, for 2017/2018.
The recent grain stocks report gathered much attention as many headlines focused on corn stocks – estimated at 2.29 billion bushels – reaching the highest levels since the 1980s. This week’s post considers U.S. ending stocks data and how large the 2016/2017 ending stocks are.
In Figure 1 are USDA reported ending stock for U.S. corn, soybeans, and wheat since the 1990/1991 marketing year. These data are from recent WASDE estimate (September 12, 2017) for 2017/2018. This is important to note as these September WASDE data do not reflect the later-published September stocks report. With that said, the general trends remain the same.
The chart quickly sums up the grain market frustration. Ending stocks, shown in millions of bushels, are at (or approaching) some of the highest levels since the early 1990s. Corn stocks are well above previous highs and have rapidly recovered from 2012’s drought-induced sub- 1 million bushel carryout levels.
Wheat stocks are expected to turn lower, but those improvements are from 25-year highs. Soybean stocks, also trending higher, are rivaling the highs of 2006/2007.
Ending Stocks to Use
We have pointed out in previous posts that comparing bushels of ending stocks over several years is tricky. Over time, especially several decades, one would expect production and usage (domestic consumption and exports) to increase. In turn, an upward trend in bushels of ending stocks would not be surprising. This is especially the case for corn and soybeans.
In figure 2 are the ending stock to use ratios for U.S. corn, soybeans, and wheat since the earlier 1990s. Corn ending stocks, currently in the neighborhood of 16% for 2016/2017 and 2017/2018, is considerably higher than the four-years-run of stocks less than 10% of use (2010/2011 to 2013/2014). However, ending stocks were much higher in 2000/2001 and 2004/2005 as they approached 20%. Since the 1990s (1990/1991 to 2015/2016) ending stocks were an average of 15.3% of use.
The story is similar for soybeans. Ending stocks for the 2016/2017 year will be about 8% of usage (estimated closer to 11% for 2017/2018). Current stocks are considerably lower than the 18.6% reached in 2006/2007. Furthermore, the soybean stocks to use ratios been an average of 8.8% of use since the 1990s (1990/1991 to 2015/2016).
The situation is worst for wheat. Ending stocks for 2016/2017 were estimated at 53.4% of usage in the September WASDE report. Wheat stocks are generally higher than corn and soybeans, and more variability since the 1990s is noticeable. Wheat ending stocks rarely fell below 20%, but regularly approach (and occasionally exceed) 40%. Stocks to use for wheat have averaged 29% since the 1990s (1990/1991 to 2015/2016).
How bad a situation seems can often be impacted by 1.) how much one remembers, 2.) how much data one considers, and 3.) or how far back the graphs are drawn. For instance, if one only considers ending stock since 2010, it is a horribly bleak outlook.
In figure 3, ending stocks since 1960/1961 are shown (reported in millions of bushels). The first thing that stands out is corn ending stocks during the 1980s. Early in the Farm Financial Crisis, corn ending stocks hit 2.5 and 3.5 billion bushels (1981/1982 and 1982/1983). After a brief retreat, corn stocks surged to more than 4 billion bushels for three consecutive years, peaked at 4.8 billion in 1986/1987. In total, five marketing years during the 1980s reported ending stocks higher than 2016/2017’s 2.3 billion bushels. If you want, you can read the September 1987 Grain Stocks report here.
Wheat stocks hit 1.9 and 1.8 billion bushels in 1985/1986 and 1986/1987. Much higher than today’s burdensome billion-bushel expected carryout.
We have frequently commented how current conditions being quite different from the farm crisis of the 1980s. Ending stocks, especially for corn and wheat, is certainly an important difference.
The ending stock to use ratio since 1960/1961 are shown in figure 4. As one might expect, this ratio was extremely high in the 1980s. Wheat ending stocks exceeded 97% of use in 1985/1986 (it previously exceeded 100% in the early 1960s). During a 15-year stretch from 1976/1977 to 1990/1991, corn stocks exceeded 16.5% in all but one year. Ending stocks during this period averaged 32% of usage. In other words, for 15 years the corn ending stocks to use ratio was, on average, twice as burdensome as current levels. Talk about bearish!
For a bit of context, corn ending stocks reached a record of 66.1% of usage in 1986/1987. At 2016/2017’s usage of 14.59 billion bushels, an ending stock ratio of 66.1% today would be 9.6 billion bushels, or 4.2 times today’s levels. That would be a mind-boggling amount of ending stocks to think about.
Grain stocks are important when considering the supply and demand situation. It is tricky to talk about ending stocks in absolute bushels. Considering only the data in figure 1, one might conclude something entirely different – and make different business decisions as a result – than the conclusion drawn from figure 2. A likely conclusion from figure 1 is that current corn ending stocks, at nearly 2.3 billion bushels, is a 27-year record. On the other hand, ending stocks relative to use (figure 2) are currently near 16%, a level exceeded eight times in the last 27 years (or 30% of the time).
Furthermore, the timeframe considered can also impact one’s conclusions. One could easily argue that is corn situation is 1.) The worst in nearly a decade 2.) A little higher than the average of conditions since the 1990s and 3.) On par with the best years in the 1980s.
While there are many differences between the 1980’s and today – such as inflation and interest rates– the grain stock situation is very significant. Grain stocks in the 1980’s provide context on how net farm income got so persistently low in the 1980s and why government’s policy response was quite dramatic (from government payments to idling acres).
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Difference in the September stocks report from the earlier WASDE: Corn ending stocks lower, 2.295 billion bushels versus 2.350 (Sept. WASDE). Soybeans ending stocks, 301 million bushels, versus 345 (Sept. WASDE).