Outside of a relatively smooth start to this year’s planting, corn producers are finding it hard to find any positive news in the corn market as the coronavirus continued to have a negative influence over the markets, as well as our everyday lives.
Ed Usset, professor emeritus and grain marketing economist with the University of Minnesota, found it challenging to find a silver lining of any kind with corn other than planting.
“When we set up this (interview), I told myself I wanted to be positive, but it’s hard right now.
It’s hard to find the good news,” Usset confessed.
One of the major problems facing the corn market is a lack of demand, largely due to the extremely low crude oil prices, which is causing a weakening in demand for ethanol.
“The corn market is a story of demand collapse,” Usset said, emphasizing the importance ethanol has been to corn for 15 years now. “Over the last few years roughly 40 percent of the corn produced in the country is used in ethanol production, and as we speak, roughly half the ethanol production in the country is currently shut down or furloughed. Some are permanently shut down and some are kind of temporarily furloughed, but half the capacity is not running at this time. That’s not a good thing.
“And if you think grain markets look bad, all you have to do is look at some charts on milk prices and hog prices to see what ‘really bad’ looks like,” he continued. “Of course, the other big component of corn demand is animal feed, which is equally important as ethanol, and that, too, is on its heels right now. So the biggest two pieces of corn demand are really suffering right now with no quick way out.”
On the export side, Usset said export sales are doing “okay,” but in the grand scheme of things, corn exports are around just 15 percent of our market.
“I’m glad they’re hanging in there, but that’s not going to make up for the losses we’ve had domestically,” he said.
Looking at local prices in southwestern Minnesota, Usset noted the nearby corn contract for May was still over $3. One would have to go back 11 years to September of 2009 to find a nearby corn contract as low as it currently is right now.
Cash prices in southwestern Minnesota as of April 27 are in the $2.70 per bushel range, give or take.
“It’s hard to even talk about, hard to mention,” he said.
At one local elevator in west central Minnesota regularly followed in this column, as of April 27, the May cash price for corn was $2.60 and basis was -45 cents under. The October 2020 futures price was listed at $3.29 and basis was -7 cents under.
“The worst part is there just seems to be no light at the end of this tunnel,” Usset said. “The only good thing going on right now is planting, which I think is always a time of a little bit of promise. It’s the start of a new year, and despite all our thoughts of delayed planting and wet soil conditions, at least from a Minnesota perspective, we’re off to a very good start.”
Producers Usset has talked to have told him that planting is progressing well.
“That’s one good thing,” he said.
Given the current price situation and the uncertainty revolving around the coronavirus, Usset said he’s not sure what impact that will have on planting decisions or on final planted acres.
“I’m not sure of what acres will end up being because the soybean/corn price ratio has really changed pretty dramatically in the last six weeks,” he said.
He explained the price of soybeans is divided by the price of corn to come up with the ratio. Going back over the last 10-15 years, he said that range can be anywhere from 2-3 times, meaning soybeans can be 2-3 times higher than the price of corn.
“In other words, the soybean price is two times the price of corn, or on the high side, three times the price of corn,” he said. “Up until about six weeks ago, the soybean price ratio was 2.3-2.4 times the price of corn. That’s a neutral range. It doesn’t tell you to plant soybeans, it doesn’t tell you to plant corn. It’s just hanging in the muddy middle.
“But now, the price of corn has dropped so dramatically that the ratio has kicked out to 2.7-2.75 and that starts to get people paying attention,” he continued. “Soybeans are going to look a little more attractive.”
That said, he added that it was already April 27, and the planters were rolling hard and the question is whether there’s enough time to make a planting change.
“People make preparations. They have to buy seed, they have to make decisions on fertilizing and things like that. You’ve made a commitment to corn or soybeans, so I don’t know if that change has come in a timely enough way to make a dent there,” he said. “I would imagine there are people out there who might take a hard look at moving away from corn and toward soybeans, or even, as you get into the Dakotas, into wheat.
“The news is not great with corn,” he concluded.