On Oct. 9, USDA came out with its third bullish report for corn, which the market welcomed, as did producers.
“We came out again with another bullish report – the market isn’t used to seeing multiple bullish reports in a row,” said Luke Swenson, president of The Money Farm, West Fargo, N.D., on Oct. 12. “We had September production, we had October production and we had September stocks. All came out and hit the mark and exceeded what the trade was expecting.”
The interesting thing, he noted, is the numbers that weren’t set.
“While we took the smaller stocks number for corn into account, (USDA) played around with yield and production and harvested acres a little,” he said. “Those were all kind of within line. The more interesting one is what wasn’t said, basically, about China.”
Swenson noted that the Foreign Agricultural Service has predicted that China will import 7 million metric tons (MMT) of corn this year, and he believes China has already bought 8.7 MMT from the U.S.
“So the question the trade is trying to ponder is when and how are we going to take that into account, and how does that play into stocks when you know earlier in the year we were looking at a 3 billion bushel (BB) carryout? We’re already down to 2.1 BB with already another 50 million missing from that number with China’s extra purchases that they’ve made,” he said. “Given, they could cancel, but it doesn’t seem likely at the moment. So there’s a lot of friction to play out on the demand side. We’ll just see where that’s going to go going into the winter.
“But you’ve got funds sitting on a record long. You’ve got harvest just starting to kick up,” he continued. “I wouldn’t be surprised if you see a little bit of pressure here in the near-term and then let the market breathe and contract and then from there go forward and start to digest the news going into next year.”
Swenson believes there’s going to be a lot of people in the U.S. starting to get excited about corn in the months to come. “But the question is, are they going to start pricing in $4 futures for next year early or are they going to wait until spring comes again and kind of get stuck in the planting decision process?” he asked.
One of the reasons China has been purchasing so much corn is because their hog herd has rebounded quicker than expected from the African swine flu that decimated large numbers of hogs and they need the feed. Another reason is that China had some big floods in some regions of the country causing the loss of a few million acres through the year. Both were supportive for increased imports from the U.S.
Many in the industry feel that due to the rebound in their hog herd and the fact they keep adding to their protein production areas, their demand base is rising up.
“That and the fact they just continue to buy out Brazil on the bean side,” Swenson said. “They clean up what they can elsewhere. It shows that they’re buying from everyone. This isn’t just the trade deal thing. That’s one thing the market is really paying attention to and excited about.”
On the monetary side, Swenson noted that corn futures prices were bouncing around the $3.90 area as of Oct. 12, depending on where producers were delivering to. That meant producers were looking at cash prices anywhere from $3.45 to $3.65 depending on how hard elevators were scraping for it.
Swenson said there’s a lot of corn that’s going to be coming off during harvest, but the big thing that’s different this year is we’re asking, ‘What do you do with 15 percent corn coming off the combine?’ We’ve never had that before. And you’ve got ethanol plants that have been having that delivered to them for the last few weeks. I don’t think that’s going to slow down.
“You’re going to see those basis probably get pressured a little bit just because guys are going to be happy to bring in some good corn at harvest,” he continued, “but then after that I think basis will tighten up a little over winter as people start getting a little greedy and fight and try and play the demand card, especially in our area where we’ve got China corn going out of the (Pacific Northwest) and we’ve got our ethanol plants up here, but we’re short a few million acres on a normal year.
“This area is not going to be the biggest for stocks, so everyone’s going to start to play that game a little bit this spring and how we want to try and manage basis. I think the corn basis this winter is going to be pretty intriguing,” he added.
Looking at local prices, at one local elevator in west central Minnesota regularly followed in this column, as of Oct. 12, the October cash price for corn was $3.50 and basis was -47 cents under. January 2021 futures price was listed at $4.04 and basis was up 2 cents.
With the current price situation and harvest progressing, Swenson had some suggestions for producers.
“Right now, we own some puts on corn. We owned some puts going into the report, and this summer, but we hadn’t made any cash sales this whole year until the day before the report (on Oct. 9),” he said. “We priced out 30 percent and then we just said we’re content to let this work in the near-term with good, solid sales to start and then we’re going to see where the market grinds out from here.
“If you haven’t sold anything, we always say don’t look a gift horse in the mouth. Take some of this off the table; lock in some good profits to start the year out and then we can start to get a little greedier and try to manage both sides of the remaining crop that’s in the bin this winter,” he said.