This year’s corn crop is shaping up to be a good one, though not great, as the market continues to watch and trade on the weather.
“We’re trading U.S. weather, and we’re heading for a remarkably average crop, that’s where we’re headed,” said Ed Usset, professor emeritus and grain marketing economist with the University of Minnesota’s Center for Farm Financial Management. “It’s not a great one. In some areas it may be great…for both corn and soybeans.
“I think the corn crop is headed for a trend line yield. I can’t argue with USDA,” he continued. “Yes, we have some problem areas, mainly the western Corn Belt, but parts of the eastern Corn Belt have been getting wonderful rains. They’re in great shape and they’re going to have very good crops. And even here in Minnesota, you talk to people and they’re telling us it’s dry, it’s dry, it’s dry. Yet a lot of people will look at you and say, ‘Yeah, but we got a little the other day, and we’re doing okay.’ That’s what we’re trading.”
The market is looking at the forecast and if it sees hot, dry weather coming, the market reacts one way. And if the forecast has changed and it’s not quite as hot, or there’s a little broader moisture pattern than they thought, it changes the tone of the market again.
“I’m looking at the one- to three-day map for rain and Illinois is going to get it north to south. Indiana and Ohio (are) in great shape. Iowa is doing okay. We have some areas that are tough though,” he said.
“So that’s what we’re trading. We’re looking at the maps, we’re looking at the heat coming (and saying), ‘Oh boy, it’s hotter than I thought, we’re going to rally.’ Or, ‘It’s just a couple degrees cooler than we thought and that rain they thought was localized is going to be a little broader’…and boom, we’re off 50 cents in soybeans yesterday,” he added.
And though the market is trading the weather, it’s also paying close attention to international news, including the ongoing war with Ukraine and Russia.
In late July, the two countries announced an agreement that would allow Ukraine to export grains out of their ports in the Black Sea. However, within hours it was reported that Russia launched a missile strike on the ports.
Usset said it was “good news” that a vessel, he believed with a shipment of corn, left Ukraine, but how long the agreement remains in place is highly uncertain.
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“I do not trust the Russians standing behind that. I don’t trust them one bit,” he said. “But, so far, so good. It’s nice to see one vessel leaving.”
There has been a lot of market reaction to the news of the agreement regarding exports from Ukraine. But at this point it’s uncertain how much will be able to get exported, so the market is likely to see quick price declines followed by quick price upticks depending on the latest news. In any case, it will be a big factor the market will watch closely in the coming weeks and months.
Looking at local prices, Usset said there’s a big inverse in the corn market.
“We’re looking at corn somewhere in that $6.80 to $7 range in southern/southwestern Minnesota. But new crop is at a $1.30-$1.40 discount, so we have a big change to make between now and early October,” he said.
At one local elevator in west central Minnesota regularly followed in this column, as of Aug. 2, the August cash price for corn was $6.60 and basis was +65 cents over. The October 2022 futures price was $5.97 with the basis at -13 cents under.
“In the next two months, one of two things are going to happen – the old crop price is going to drop $1.30, or the new crop price is going to rise $1.30, and I vote on the first option, that somehow we work our way lower in the new crop. Spot prices, too,” he said.
Although corn prices at around $7 is about a dollar off its peak of $8 in June or earlier, he noted that prices haven’t dropped off as much as they have for wheat. Spring wheat prices in the Red River Valley were under $9 a bushel at about $8.70 with some bids in the low $8 range.
“That peaked out over $13 a bushel. So, the wheat market is $4.50 and closing in on $5 off its highs. That’s sobering. And yet, $8.50 wheat is a good price. It’s just not $12,” he said.
Elsewhere, Usset noted that South America has a good corn crop coming.
“We’re trying to ‘kill’ our crop and not quite getting there. It’s going to be an okay crop, not a boomer. But they’re doing well in South America,” he said.
“I’m not going to get bearish on you. I’m not going to propose that prices have a long ways down to go. Carry outs are still an issue, still tight, still tricky if you will, and any really bullish news, some war development we hadn’t seen coming, anything like that could trigger this back up,” he said. “But we do need something new to get us going back up. We just can’t talk the same old story…for both corn and beans.”