What Do We Know About Corn Demand In A Covid-19 Environment?
U.S. Corn goes to:
- Ethanol 38% gross 26% net (adding back DDG)
- Feed 38%
- Export 15%
- Food, Seed, Industrial (not ethanol) 9%
How is each segment impacted?
Ethanol
- Cars in a garage don’t consume corn – that demand is lost.
- Ethanol plants are shutting down now.
- Corn basis has collapsed, many ethanol plants don’t have a bid for corn.
- A third (33%) of the lost ethanol demand is offset by more corn going directly into feed.
- The Math: you can pick the % and number of weeks. We soak an average of 105 million bushels of corn a week into ethanol.
Four weeks of driving reduced by 50% = 125 million bushels of lost demand.
Feed
- We lose meat demand as the consumer becomes a cook rather than a restaurant patron.
- If required, the supply chain can move the meat supplies to retailers and the meat consumption volume can be maintained. Meat demand is lost during the transition.
- The consumer eats more chicken and less steak when eating at home.
- Nothing in pork demand will offset the presence or absence of China as a pork importer.
- If meat demand slows, corn demand rises initially as we feed more heavy weight animals. (Can I say:” heavy weight”?)
- If meat demand slows, slower meat demand means lower corn demand in 4-5 months.
Feed demand is little changed.
Exports
- Exports go to feed animals – mostly pigs and chickens – in other countries.
- US export demand for corn will be impacted by the availability of competitor feed grains in Europe and South America.
- Foreign meat demand is impacted similar to US by eating at home.
Export demand is not impacted significantly by Coronavirus.
Food, Seed, Industrial (non-Ethanol)
- HFCS – Slows with fewer soft drinks via food service.
- Food ingredients – supported by corn chips.
- Seed – no change
FSI demand is unchanged
All this is true unless there are significant interruptions in transportation or processing ag products. If this happens, all bets are off.
- Transportation issues usually don’t impact balance sheets.
- Supply chain disruptions have local impacts.
- Buying futures does not solve a short term, local supply availability problem.
- Coronavirus supply chain issues are not caused by economic issues, therefore they are not solved through economics (price). A worker that is uncomfortable working for fear of contracting Covid-19 cannot be enticed back to work with more money.
Summary
The main change in corn demand will be via ethanol. Lower ethanol usage has already had a significant impact on corn prices. Much of the price decrease has been via basis. It is unlikely old crop basis strengthens.
What do you do? Consumers should own 75% of summer needs and 25% of Sep – Dec. Producers should be prepared to sell on any weather rally
