Perhaps in a typical year fewer harvested acres and reduced yield estimates would provide a rally in prices, no matter the commodity. And corn prices have rallied some, but not as much as producers thought they might following a huge storm – mostly wind – that impacted hundreds of thousands of corn acres in Iowa and the Corn Belt.
That’s because farmers were already anticipating record or near record setting production and the storm simply lowered estimates to last year’s production level.
“It is pretty well accepted that, number one, we’re going to reduce harvested acreage because of all the devastation in Iowa from the derecho storm,” said Betsy Jensen, Northland Farm Business Management and a producer/marketer from Stephen, Minn. “The market knows that. They are aware of how many acres were destroyed – I think they cut about 300,000 just out of Iowa – so that really was a devastating storm.
“They’re also going to reduce yields, ironically, because it’s too dry. The storm brought winds, but it did not bring enough rain,” she added.
Normally producers would look at that kind of news and think it would give a boost to prices. And although prices have gone up some, it has not been to the levels some were expecting.
“I know farmers are kind of getting bullish on corn because we have reduced acres, we have reduced yields, and we see ethanol demand picking up again,” she said. “But honestly, in a best case scenario, maybe we get under 2 billion bushels in ending stocks and that is not a very bullish scenario.
“The corn market has recovered some, but I don’t know that I really can find a way to say that the corn market is bullish at this time,” she added.
For the last week in August, Jensen noted that the ethanol drive was over 93 million bushels (MB) and that only 88 MB were needed to meet USDA’s projections. That was very positive news for the ethanol market.
“It’s great news for ethanol. That was a market we were very nervous about losing and it seems like everything is settling down,” she said. “Fuel demand is picking up again and we’re also using ethanol for sanitary products, like hand sanitizers. Demand was gone for a while for ethanol and it has popped back very quickly. So the fear we had back in April about not needing ethanol has certainly changed. Everyone has taken a deep breath and the ethanol situation seems to be back to pre-coronavirus levels.”
On the demand side, Jensen noted that China has been very aggressive at buying corn as they would like to see their hog industry build back up after suffering huge losses due to African swine fever in the past year.
“China has been a very aggressive buyer of corn. But even with that, even if we increase demand by 200 MB, which is a huge possibility, that still doesn't give corn a real bullish case,” Jensen said. “Keep in mind that corn was incredibly bearish this spring when guys were planting. We didn’t have ethanol; we weren’t exporting anything. I mean, corn looked like it was a loser situation. Corn now looks like it’s back to normal.
“I wouldn’t call it bullish though,” she continued. “If guys are holding out for $4.50 corn like we had a year ago, I really can’t envision a scenario where that happens. But maybe we’ll get back to where we can get $3.50 cash; $3.75 cash is kind of my goal. I don’t think corn is going to be wildly profitable for farmers this year, but perhaps we won’t lose as much as we thought we were in the spring.”
Break even prices for corn these days, according to Jensen, is generally in that $3.50-$3.60 range. However, that’s not where current prices are. As of Aug. 31, cash prices were just above $3, and although prices have risen slightly over the past month, that’s still below break-even prices.
“That’s not very exciting,” she said, adding that at those prices it’s going to be pretty devastating for those farmers in Iowa who don’t have a crop and they’ll likely be collecting crop insurance. “But I will say that, people up here in Minnesota, our yields look pretty respectable. So, hopefully with good yields, if we get above average yields, we can drop our break-even rate to even more like that $3.25-$3.35 range. That’s what I’m hoping.”
She also pointed out that there is a good carrying charge for corn and if producers have the ability to put it in the bin they could get $3.25 for delivery after the first of the year.
“But you do have to put it in the bin,” she said. “And so we’re getting to the point where maybe we can start to look at making some sales. Make sure to take advantage of the higher prices that they’re offering for delivery after the first of the year.”
At one local elevator in west central Minnesota regularly followed in this column, corn prices were $3.02 cash and basis was -56 cents under as of Aug. 31. October 2020 corn futures was $3.58 and basis was -1 cent under.
“I do think corn is probably going to go into the bin for a lot of farmers this year,” Jensen said. “I know wheat farmers will have the capacity (to store some corn) because we had such a poor wheat crop. So most guys, if they’re wheat farmers, are not short on storage. I do think they will have the capacity to store some of their corn.
“Harvest prices are over $3 now, but that’s not real exciting to me,” she continued. “I’m hoping we can ride this weather rally for a little bit longer to get some better corn prices.”