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Corn market watching crop potential

Corn

Weather is an important factor for “making” a good corn crop, and July is an important month in corn’s development. That’s why when the weather turned hot and humid in July, the market, along with analysts and producers, took notice. But this doesn’t necessarily mean bad news for this year’s corn crop.

“Everyone’s kind of joking, ‘Look, it’s hot weather in the Corn Belt in July, that’s never happened before,’” said Luke Swenson, president of The Money Farm, West Fargo, N.D. “Everyone kind of gets worked up at the first sign of some rolled up corn. Well, we’re still fundamentally bullish in the long-run just because we think (about) when the crop was put in, how it was put in. Obtaining record yield is going to be kind of hard, so pushing anything above that 177 (bushels per acre) in the near-term is going to be tough.”

Swenson was referring to the 177 million bushel (MB) production estimate in USDA’s July 12 report in which it projected estimated production for the 2022 U.S. corn crop.

“That being said, we’ve gotten some rain that’s come in and hit some of the drier areas and (that’s a) big thing to pay attention to,” he said. “The funds have had a record long position. We ran up going into the Russia/Ukraine war, (which is) dragging on and not going to end anytime soon from the looks of it, but you’re looking at the fact that we ran to basically near all-time highs, and then pulled back because the world is spinning on relatively normal.

“Russia is taking a lot of that Ukrainian wheat and sunflowers they can find anywhere and storing it up and shipping it to Crimea super cheap and just taking it as the spoils of war, which is not overly exciting to see, but we kind of all anticipated it to happen,” he continued.

“Then you couple that with the dollar pushing to 20-year highs. We ran the euro to parity in early July. That’s something that obviously is not weighing well on us,” he added. “We sold a lot of grain early in the year, but now, as it came around here as the dollar has gotten stronger, prices have gone up. And so, like always, we aren’t the cheapest option. We are the exporter of quality and the last resort when people need it.

“So, when it’s slowed down here you’re going to see some of that pressure come into the markets. We’ve obviously seen that in the corn market, but in the wheat market more than anything, and beans are feeling it, as well.”

Swenson feels corn yields will be in the mid-170s, although he thinks a few people are still going to argue over acres overall.

“But in the long-run, we think the market’s kind of in a range that it’s getting back to somewhere normal. Some of the consultants we talk to are saying 174-175 (MB). Well, if that’s true, we’re in the lower end of the range of where we need to be, and if we’re at 177 (MB), we’re on the higher end of the range,” he said. “But no one’s going to take any big steps one way or the other as far as commercially taking a lot of risk until you get a little farther on and you see what the actual effects of pollination are.

“It’s going to take until the very end of July before people start opening cobs and seeing what it actually looks like, (and) if there were any issues,” he continued. “We personally don't think there is much for issues, and we’re going to continue on with the crop getting taller and cob picture starting to show up and maybe getting a little more bearish just from the fact that we’re going to harvest somewhat near a normal crop.”

Condition of this year’s crop is a little below the five-year average. Swenson noted there are some areas in the Corn Belt where there are production “hiccups” that are feeling more pressure, such as southern Illinois and southern Indiana. Those areas are “not the highest-yielding places.”

“The places that are the big-yielding areas, they’re sitting on a pretty solid crop, so that’s offsetting some of the risk there,” he said. “I don’t think you’re going to see those shift much, especially with some rains that have come through after the Fourth (of July) and the middle of the month.”

Looking at exports, Swenson noted that with the U.S. being one of the highest priced exporters, sales have been slow. He noted China had announced a sale in July, but retracted it the same day, primarily because they “probably over-reported the quantity,” which means it was an unreportable sale once it fell under that mark.

“I don’t think you’re going to see a lot of big sales coming out right now. I think it’s going to be relatively quiet until they figure out what the rest of the world is looking like,” he said. “And as long as they don’t see on the horizon that we have a huge issue, I don’t see everybody flooding back to buy in the near-term. I think they’re going to wait it out until we get a little closer to harvest.”

Looking at the ethanol side of the corn market, crushing is going along fine thanks in large part to $4.50 gas.

The cattle market is running along fine, as well, as there is good demand there for feed.

“(The cattle market) looks like they’re in a bullish formation, as well, and should be keeping lots full and demand strong there both from the DDG’s (dried distillers grain) end and the regular cracked corn side,” he said.

Considering local corn prices, Swenson said that, basis-wise, old crop corn ethanol plants are coming in at plus 90 cents in many cases for September.

“The irony behind that is that’s purely a crush margin. You don’t have anything on export bids that are anywhere close,” he said. “Your shuttle loaders are just way out of line … so you’re seeing plus 90 to negative export bids, plus you’re seeing beans actually softening up a little bit.”

Swenson noted at the Casselton, N.D., plant, the July bid was plus 45 and then August dropped to 50. The Tharaldson ethanol plant “across the street” is the same. Further south at Hankinson, N.D., “is borderline, plus a dollar. They were trading plus 95 a few days ago,” he said. “So it’s very regional. Who’s got enough demand picked up? Who’s pre-bought and who isn’t? But really, the exporters overall are lagging in the market to the ethanol crush.”

Looking at local prices, at one local elevator in west central Minnesota regularly followed in this column, as of July 19, the August cash price for corn was $6.66 and basis was +70 cents over. The November 2022 futures price was listed at $5.95 and basis was -15 cents under.

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