USDA Adjusts Corn Inventories Downward; Says Corn Demand Near Record Last Quarter

Surprise readjustment puts September 1 corn inventories down more than ten percent versus 2019 with June through August three month “disappearance” at a near record 3.02 billion bushels.

Inventories of the largest US agricultural crop were officially revised downward in a once annual government report widely watched by traders and farmers.

Known in the trade as the “September Grain Stocks” report, the publication is relied upon by analysts because it sets the official benchmark for grain inventories in the United States as of September 1, the start of the new marketing year for big grains like corn and soybeans. It is released on September 30 each year by the National Agricultural Statistics Service (NASS), the Agricultural Statistics Board, and the United States Department of Agriculture (USDA).

Yesterday’s numbers shocked the corn markets by showing an unanticipated decline of 226 million bushels of corn from September 1, 2019 to September 1, 2020. Most analysts had predicted that US corn inventories would have been around 2.250 billion bushels at the beginning of September, but the government pegged the official number at 1.995 billion bushels. Corn futures markets reacted instantly, with most corn futures contracts higher by around three percent.

Importantly, it was not simply the decline in inventories that garnered the attention of corn watchers. Usually when inventories decline significantly it is because of a supply problem, but in fact the USDA showed a minimal rise in corn production, which means corn usage was higher. In fact, the “disappearance” number, that is to say the amount of corn used by animal feeders, ethanol producers, food, seed, and industrial users, and by exporters, was the second highest ever recorded for any prior 3 month period at 3.02 billion bushels. That means almost more US corn is being used than ever before, and it’s happening in a COVID inhibited economy.

This is a very big deal because the US is the world’s largest producer of corn. The world’s second largest producer, China, has already committed to import more corn than ever in its history in the current crop year, because of a range of production problems that have hit China hard this summer.

A full breakdown of what specific sectors are estimated to have used all that corn is laid out monthly in the government’s World Agricultural Supply and Demand Estimates report (WASDE), the next of which will be released October 9, 2020. This next WASDE will be watched closely by traders around the world because suddenly the world’s corn balance sheet may have shifted from a healthy (some would say excess) surplus to one that is perhaps not so robust.

The eight year period during which corn prices either declined or moved sideways due to perfect growing conditions and plenty of corn supplies may be coming to a close. Time and more information as the harvest season progresses may provide some clues as to the future of perhaps the world’s most important agricultural crop.

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