Corn

In mid-August, the corn market was busy trying to comprehend the latest World Agricultural Supply and Demand Estimate (WASDE) report from USDA that provided numbers for production and use for the various commodities, as well as trying to determine the impact of a major storm – a derecho – that plowed through central Iowa and damaged anywhere from 10-14 million acres of corn.

“This August report is important for corn and soybeans because it’s the first formal update for yield forecasts,” explained Frayne Olson, grain marketing economist at North Dakota State University, adding that in the report USDA increased corn yield from the trendline average of 178.5 bushels per acre, up to 181.8 bushels. Total production went from 15 billion bushels (BB) up to 15.278 BB. That added 278 million bushels (MB) to the production estimate.

“However, what has people in an uproar is that the survey was done just before the major derecho storm came through Iowa, so these numbers don’t reflect the impact of that storm,” he said.

Olson explained that this first formal update for yield forecasts is based first off of a survey of farmers and what they think yield will be. For this report, USDA surveyed 20,350 U.S. farmers, most in main growing regions for corn, wheat and soybeans. The agency also used satellite imagery to estimate yields, something it has done for the last 20 years.

The corn estimate in the report at 15.278 BB would be a brand new corn record, however that will change as USDA has announced it will resurvey farmers in Iowa to get a better idea of what producers are now estimating after the storm.

“There are a whole bunch of different numbers being floated around as to how much will be taken off the production number,” he said, adding there was a bounce in both the corn and soybean markets because of these concerns about the uncertainty as to how many acres were destroyed or impacted and how many bushels will actually be able to get harvested.

“If this would have hit North Dakota nobody would have paid much attention, but because it’s Iowa, and Iowa is the number one corn state and number two state for soybeans, everyone is getting bent out of shape. And that’s legitimate.

“I’m not trying to downplay this in any way, shape or form, but I do think one of the things we have to be careful of is about putting too much weight or emphasis on what we see on social media,” he said. “If you had minor or moderate damage, you’re not going to squawk about it, but if you got hammered – and all the pictures showing up on the news and press and in social media are going to show the worst possible places because that’s what catches your eye and attention – so there’s a temptation to sensationalize the damage.

“For the farmers that got hit, this stinks. This is horrible. How many more hits can (they) take?” he said. “But, from the big picture marketing standpoint, the rest of the corn crop across the U.S. looks really nice.”

Iowa was at 202 MB for a state average prior to the storm. Other states such as South Dakota, Minnesota, Wisconsin and Michigan are projected to have record high yields.

Illinois was projected to have a yield of 207 MB, not a record high, but close, and they didn’t get the damage. Neither did Nebraska, which was at a 191 bushel per acre average yield, or Indiana and Ohio, which were at 178 and 175 bushels per acre respectively.

“There’s a lot of these big corn producing states that didn’t get this damage that are looking at a monster corn crop,” Olson said. “So how much do you take off? Most of the numbers I’ve seen floated around are indicating we lost between 200-500 MB, so that brings us back to 15 BB or slightly below. Now, that 15 BB is not a record, but it’s very close to record corn production in the U.S.”

But for farmers in those states, including in Minnesota or North Dakota that have corn out in the field, they’re wondering why they don’t see a bigger pop in values for corn because they’re thinking half the state of Iowa is going to have zero corn. Well, that’s not the case, Olson noted.

“Some of this corn will recover. It got leaned over and it’ll come back up, but it’s still going to make corn. It’s not going to be a zero,” he said. “There will be some fields that are zeroed out, the stalks got broken and the plants are lying flat in the mud, and it’s going to be unharvestable, but those acres are not going to add up as fast as a lot of farmers think they should.”

Olson has discussed the matter with Extension colleagues and counterpoints in Iowa and Illinois and they are basically saying the same thing, ‘yes, for the farmers that got hit it’s horrible, but in the big scheme of things the U.S. is still probably looking at a 15 BB corn crop.

“There are so many other states that are growing corn that are going to have a really good corn year. We had a bump in price and it helped, but I don’t expect a lot more out of it to be real honest,” he said. “I’ve talked to enough people and farmers about this that I know that’s not what they want to hear, that’s not what they’re expecting. They see the pictures on the news or on social media and think ‘oh my God, why hasn’t corn gone up a buck?’ You don’t see those fields that are perfect and never got touched.

“If you’re a farmer that got hit, this stinks, it really does. But the market is looking at it differently and in the big scheme of things, yes, it took the top end off, but it wasn’t really a game changer,” he added.

Another thing he pointed is that some areas that got hit were already in a drought situation so some that corn that was laid flat was not the best corn to begin with.

On the demand side, the other thing that happened, besides USDA adding a bunch of bushels on the production side in this last report, is that they also tweaked the usage side by increasing the usage numbers.

The bottom line, according to Olson, is the amount of carryover stocks didn’t grow as much as people had expected.

“They’re still going to grow, there’s still a bigger number on the bottom line now than there was in the July estimate, but that number was very close to what the trade was expecting and that’s really why we didn’t get a big market shock or market bump either up or down in the report because when everything ran through the wash you get to the bottom line and that’s kind of what we thought would happen,” he said. “So the yield was higher than expected, so we had a bigger production increase than expected, but we also had a bigger jump in usage.”

Some of that came in the form of an increase in the amount of exports, and some came in increased feed and residual.

Moving forward, Olson said the trade will continue debating the issue of what yields will be, and as he talks to his colleagues nationally, they feel that if the fall continues to have favorable weather the yield numbers that USDA came out with in August are “very doable.”

“We’re still going to be debating the size of the crop, but from my perspective, I’m watching exports closely, because as prices go down we’re getting some interest from the international market,” he said. “There’s people coming in and buying U.S. corn because they see it as a value buy right now and China is one of those. China has bought more corn than some expected. We expected some corn purchases, but they’re becoming pretty regular, thus the reason I think USDA increased their forecast for total corn exports.”

On the downside of corn, Olson said he’s also watching the ethanol grind, how much corn is the ethanol industry using up?

“Ethanol production has rebounded, but we’re not to the levels before COVID-19,” he said. “We were on a slow, steady increase in the amount of corn we were using for ethanol. It wasn’t rapid, but we were just plodding along and things were going okay. But then COVID hit and we shut down a part of the economy and suddenly ethanol production dropped – it almost cut in half.

“We’ve seen a rebound now where the ethanol plants are coming back online and we’re using up more corn in the ethanol sector and our profits are slowly returning to the ethanol sector, but we haven’t returned to pre-COVID levels of processing. I think it will be quite a while before we get to those production levels again.”

On the livestock side, Olson noted that even though the profitability in the livestock sector has been dinged a bit – meat prices have been extremely volatile lately. He also pointed out that wheat production is still forecast to be record lows and the livestock sector is chewing up food.

“My concern with corn is the ethanol sector, and long-term, what does that look like?” he said. “I know there’s a lot of questions about that and that’s just something we’re going to have to wait and see because it’s too complicated to try and figure out.”

Looking at local prices, at one local elevator in west central Minnesota regularly followed in this column, as of Aug. 18, the August cash price for corn was $2.77 and basis was -50 cents under.

The October 2020 futures price was listed at $3.42 and the basis was -3 cents under.