By Kirk Maltais
The economic slowdown stemming from the coronavirus pandemic will sharply lower demand for American grains, according to the U.S. Department of Agriculture.
In its monthly World Agricultural Supply and Demand Estimates report released Thursday, the USDA forecast that U.S. corn inventories would rise to roughly 2.1 billion bushels in the 2019/20 marketing year, up 200 million bushels from its projections last month due to the havoc wreaked on the U.S. economy by the pandemic.
"Corn used to produce ethanol is lowered 375 million bushels to 5.050 billion based on the latest indications from Energy Information Administration data indicating an unprecedented decline in ethanol production and motor gasoline consumption as a result of Covid-19," the agency said.
The EIA's report Wednesday showed U.S. ethanol production sliding to 672,000 barrels per day, the lowest level since the EIA started reporting ethanol data in 2010. Stockpiles, meanwhile, are up to 27.1 million barrels, also a record.
The uptick in corn inventories is more than traders had expected, according to data compiled by The Wall Street Journal. On average, traders were expecting corn stockpiles to rise to 1.99 billion bushels. However, the increase wasn't entirely unexpected, said Doug Bergman, head of the agricultural trading desk at RCM Alternatives.
"The USDA ripped off the Band-Aid," Mr. Bergman said.
However, indications that the usage of corn for animal feed and other applications like alcohol would rise pushed up May corn futures on the Chicago Board of Trade, with the contract up 1% after the report's release.
The decrease in ethanol production in response to plummeting oil prices in the past month is the chief factor eating into U.S. corn consumption. However, news that Russia and Saudi Arabia have reached an agreement in principle to cut oil production by 20 million barrels may serve to stop the slide of ethanol margins.
The USDA also forecast higher grain inventories for wheat and soybeans, with wheat stockpiles rising by 30 million bushels to 970 million bushels in 2019/20, and soybean stocks rising 55 million bushels to 480 million bushels.
Write to Kirk Maltais at email@example.com