Aug. 31 marked the end of the 2020-21 marketing year for corn and it ended with prices hovering around $5.50 and a tight stocks situation. The 2021-22 marketing year began Sept. 1.
“We’re ending the year with a very tight stocks situation,” said Ed Usset, professor emeritus and grain marketing economist with the University of Minnesota. “I notice when I look around at bids, I am surprised at how many places aren’t even posting nearby bids. They’re essentially out of the market for nearby (corn). They’re waiting for new crop and they’ve got no business going on if you’re an elevator or something like that. There’s not a lot going on.”
One thing that was going on was rain that fell across areas of the western Corn Belt. It didn’t really do anything for prices, but it should help some for crop progress.
“We just had a wonderful series of rainfalls come through this area. In a couple of weeks I don’t know if that rain would make any difference, but right now it’s got to help head filling and things like that in both corn and soybeans,” he said. “So you have to look positively on the possible effects on yield because those rains were substantial and timely, and that’s good stuff.”
The demand side of the equation in corn is not that impressive with kind of a lull in the market, according to Usset, adding that the ethanol market seems to be back on its heels a little.
“The demand side needs a fresh story, a fresh kick, and it’s not getting it right now,” he said. “Conditions in the market have held steady as of Aug. 31. If you want the bull side of this market, there’s no fresh news right now. It might be coming, but it’s not there right now.”
He noted that even on Aug. 31, when he gave this report, prices were off a little bit with December 2021 corn at $5.30. He recalled the price spike after the early August report when prices were back up over $5.90 and now they were about 60 cents lower.
“But it’s hardly a bear market…$5.30 December corn is a good price, but the bull market needs fresh news,” he said.
At one local elevator in west central Minnesota regularly followed in this column, as of Aug. 31, the September cash price for corn was $5.62 and basis was +20 cents over. The January 2022 futures price was $5.51 with the basis at -10 cents under.
For both corn and soybeans, Usset said he’s starting to look at new crop 2022 pricing opportunities.
“If you look at the December 2021 contract, which is currently $5.35, that’s a dollar lower than its high in May of $6.36,” he said. “The December 2022 contract is trading at $5.07. That’s a pretty damn good price for next year’s new crop, and it’s only about 25 cents off its high.
There could be an opportunity there for producers looking ahead.”
On the demand side, Usset noted that sales to China have been good all year for both corn and soybeans, but he’s wondering if that can hold.
“USDA is making the assumption that corn exports to China will be every bit as big as they were this year – a billion bushels. Well, they’ve never done anything that big before. It’s an incredible number,” he said. “Well, why are we so certain they’re going to be back for more?”
He pointed out that some analysts have laid out some credible reasons why China could remain a big buyer, including that the Chinese pork industry is adapting, changing, becoming larger, more modern, feeding less food scraps and more corn, so maybe there’s reason to believe that.
“I hate to bring up ancient history, but go back to 1994, the Chinese came in one year after hardly importing any corn for years and imported 160 million bushels, and I remember the rhetoric that ‘the Chinese are here in the corn market, they’re never going to go away and this changes everything.’ And two years later they were gone. Whatever they needed that year was an anomaly,” he said.
“And I’m looking at these billion bushels and asking why is that here to stay? How do we know?” he asked. “I think they probably want to produce their own. Maybe they had a bad crop and will follow up with a good one. I don’t know. And you can’t count on African swine fever (decimating their hog herd) every other year either,” he added.
“That’s what people are watching. Happy new year!”