World corn stocks cut to four-year low, thanks to China ethanol drive

27.10.2017

The International Grains Council cut its forecast for global corn stocks to a four-year low, despite lifting its production forecast, citing a larger estimate for industrial use in China, as the country sets off on ethanol industry expansion.

The council lowered by 5m tonnes to 203m tonnes its forecast for world corn inventories as of the close of 2017-18, taking the figure to the lowest since the end of 2013-14, and representing a drop of 32m tonnes year on year.

The downgrade came even as the forecast for world corn production this season was raised by 5m tonnes to 1.034bn tonnes – a harvest second only to last season’s 1.079bn-tonne crop.

However, the higher output estimate - down “mostly” to the US, where yield estimates for the ongoing US harvest have continued to nudge higher – was more than offset by increase to demand expectations.

‘Higher industrial use’

Indeed, the IGC raised by 9m tonnes to 1.067bn tonnes its forecast for global corn consumption in 2017-18, taking it 13m tonnes above last season’s record high.

The council flagged “higher projected industrial use of corn, mostly in China… where government measures are stimulating demand in order to curb stocks”.

Indeed, Beijing has ditched a programme of guaranteed corn prices to curtail further growth in the state’s bloated inventories, while initiating measures to boost demand, including a planned roll-out nationwide by 2020 of E10 – that is, ethanol blended 10% into gasoline.

That implies a large increase in ethanol demand from current levels, with a US Department of Agriculture report overnight pegging Chinese fuel use of ethanol for 2017 at 3.55bn litres, equivalent to 2.2% of the 162.8bn litres of forecast gasoline consumption.

The report also pegged at 70% the proportion of bioethanol produced from corn, with cassava accounting for 25%, and molasses used to produce 5%.

‘First stocks drop in five years’

With the IGC making only marginal changes to its estimates for the world wheat balance sheet, the corn revisions fed through into a downgrade of 4m tonnes to 493m tonnes in the forecast for global grain stocks at the close of 2017-18.

This forecast includes coarse grains, such as barley, corn and sorghum, and wheat, but not rice.

Inventories at the forecast level would be down 30m tonnes year on year, “contracting for the first time in five years”.

However, while weaker stocks estimates are typically associated with price support, the forecast for grain inventories held in major exporting countries – a figure particularly sensitive for values – was raised by 3m tonnes to 172m tonnes.

This would represent a drop of 7m tonnes year on year.


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