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USDA reports give corn market direction

Corn

USDA released four major reports on Jan. 12 – reports that will help set the direction for the corn market.

After the holidays, USDA released the World Agricultural Supply and Demand Estimates (WASDE); the annual crop summary, which is the final official numbers for planted and harvested acres, as well as yields, for corn, soybeans, and some of the other major crops; the Quarterly Grain Stocks report, which is an inventory of how much grain is in the system and how fast we are moving through those inventories; and the winter wheat seeding report.

“The release of these reports is hitting a reset button on the markets… and that kind of sets the direction for a while,” said Frayne Olson, grain marketing economist at North Dakota State University. “It’s kind of a cross check to what the other forecasts are doing.”

For corn, a lot of the numbers that came out were very close to what the trade was expecting, according to Olson.

“There wasn’t a tremendous amount of shock value, but there were a couple surprises. There were some numbers we weren't quite expecting, but they were still within the range of what the trade was expecting,” he said.

One of those happened to be the final harvested acreage number for corn and the final yield number, which then translates into total production. For corn, the yield was up a little, although well within the trade range and what companies were expecting to see, but at the upper end of that range.

“The harvested acres were below normal or what we had expected, and actually a little more below than what I think most people were looking for,” he added. “So our total production of corn was down more than what the analysts were expecting.”

Although the report didn’t have a huge shock value, Olson noted many analysts thought that the corn balance sheet was going to get a little stronger and have a little bit larger margin for error. In reality, he added, there wasn’t that big of a change because the reduction in production was also partially offset by the reduction in use, and partially because of the high prices.

In short, “we’re not using up our corn quite as aggressively as we first expected,” he said.

Producers may wonder why there was this sudden reduction in harvested acres. Although not completely sure, Olson feels the answer is that some of the acres that were originally targeted to be harvested for grain ended up being harvested for silage, in particular in the western Corn Belt, including South Dakota, parts of Nebraska, and even parts of Kansas.

In the eastern Corn Belt, Olson believes those acres that were intended for grain corn were used for grain corn, but in some of the western regions it was different.

“Those fields that were kind of marginal, especially if you’ve got quite a bit of cattle in the area, I think some of those acres that were intended to be harvested for grain originally just got chopped for silage because the yields weren’t there. And, especially the cow/calf guys, the beef guys, they were looking for some more feed supplies because the pastures were a little rough,” he said.

He explained that by taking some of those low end yields off the charts and harvesting them for corn silage, the average yield “pops” a little.

“I think that makes some logical sense…that our harvested acreage for grain was down, the ones that got chopped for silage were the lower-yielding stuff, which then brought our average up,” he said.

The other thing that the market is watching pretty closely is the South American corn crop, in particular Brazil, but also Argentina, both major competitors to the U.S. in the world of corn exports. Brazil has two crops of corn including the first crop corn, which is planted and harvested the same as soybeans, which is the crop that’s going right now, and then Brazil has a second corn crop, the safrinha corn crop.

This first crop corn is the smaller of the two, accounting for about 25 percent of their corn production. The safrinha crop accounts for the other 75 percent of Brazil’s corn production. But Brazil can export out of both crops because of where the crops are planted. The first crop corn is typically planted in the south, which is much closer to some of the ports and tends to be some of the corn that hits the export market first.

While the market will be watching corn yields coming out of Brazil and Argentina, the harvest there hasn’t started yet. However, the market is taking note that production is expected to be down some. USDA did tweak production down slightly for both countries, taking about one million metric tons (MMT) out of the Brazilian crop, which is a small adjustment. However, USDA took Argentina’s production from about 55 MMT in an earlier estimate down to 52 MMT.

“Percentage-wise at this time of year, that’s kind of a big number. We were expecting a decrease, but I don’t think we were looking at quite that large of a decrease,” he said.

So what does that mean for U.S. corn? Well, total corn production in the U.S. was down just a bit. However, the market is looking at a smaller Argentine crop, and a number of private analysts are looking at the Argentine crop continuing to shrink.

“They’ve had three extremely dry years in a row. They’ve been getting some sporadic rain showers, but not really enough to make a super crop,” Olson said. “I think as we move through the next month or so, you’re going to see that Argentine corn production continue to shrink a bit.”

On the other hand, Brazil is going to be harder because it’s a much bigger country and there are two crops to deal with, he noted, and so he doesn’t think there’s going to be as big of an adjustment on the Brazilian side.

“The moral of the story is that these reports were pretty supportive for corn,” he said.

The concern for the U.S., from a corn export standpoint, is the adjustment USDA made, taking the forecast for U.S. corn exports down a bit because we didn’t have as many bushels produced.

“That is consistent with a very slow corn export pace,” he said. “If we look at the amount of corn we sold this time of year compared to what we saw at this time last year, we’re not quite half. So our corn export season started very slow.”

A large portion of that is because corn exports into China have been slow. But there are a few other countries that have also been a little slow, as well, and not buying U.S. corn as aggressively as many had expected them to, or at least purchase as much as they had last year.

So even though there are some positives in the total world corn supply, as well as in the corn trade, the export market might be down a bit with the higher prices, according to Olson, who also feels the Chinese are waiting for some corn out of the Brazilian crop. As a result, U.S. corn exports have been a bit slow.

As always, he said the market has some positive news, as well as some negative news. But how does it impact the corn market? In Olson’s assessment, he feels the information from the reports were supportive to corn.

“We did see the futures market for corn rebound a bit. We saw a pretty nice rally coming off of that report (on Jan. 12),” he said. “We had some follow through, some increased prices as we went into Friday (Jan. 13), and that really is true for both old crop and new crop.

“The old crop prices were more responsive, more sensitive to this information than new crop, which you would expect. But it also put some strength back into the corn market,” he continued. “It made me feel a lot better about where we’re sitting. I was concerned because coming into this report the corn market was pretty soft.”

Part of that softness was because of the holiday season as there tends to be slower trading volumes and less news coming out during that time.

“The corn market was looking kind of soft. And the expectation of bigger numbers on the production side, not knowing what was coming out of the South American crop, that’s why I say it’s supportive,” he said. “I think we’re going to start to rebuild to some degree from here. I’m not expecting any kind of big rally or increase in prices unless we have something really strange happen. And given what we know today, that is supportive.”

Another thing Olson pointed out is that soybean basis levels for old crop, the crop that’s in the bins right now, are very strong with most basis levels in the minus 20-30 cents range.

“For this time of year, for corn in this region, that’s very supportive,” he said. “The reason for that is because South Dakota and Nebraska had a very short crop, so there’s this pull from ethanol plants, and there’s a pull from the feed sector trying to find out where they can get some additional corn to backfill the fact that we had a short or small local production.

“It isn’t because of the strong export demand, which is usually driving our basis levels where all of a sudden we have to shift a bunch of our corn into the Pacific Northwest region. That’s not what’s happening this year,” he continued. “This year the corn is trying to move in directions it normally doesn’t move.”

As an example, if there’s an ethanol plant in Nebraska that doesn’t have enough corn locally, it’s going to increase its bid to try and pull it from another region.

“So this kind of hopscotch of bidding goes on where they’re trying to steal from their neighbor and that neighbor tries to steal from another neighbor and as a result we’re seeing some pretty strong basis levels up here in the Dakotas,” he said.

Cash bids for corn were around $6.50, “which is very strong.” At one local elevator in west central Minnesota regularly followed in this column, on Jan. 16, the January cash price for corn was $6.57 per bushel and basis was -18 cents under. The September 2023 futures price was listed at around $6.14 and basis was +1 cent over.

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