Corn

The corn market, traders and farmers had all been anxiously waiting for the Prospective Plantings Report from USDA. When it came out on March 29 it not only included some surprises, it also had a bearish impact on corn prices.

The numbers for corn were higher than traders and farmers were expecting and not only pressured prices, but also raise more questions, according to Frayne Olson, grain marketing economist at North Dakota State University.

“Corn is the market that people have the most questions about,” Olson said. “The big change was the Prospective Plantings Report. We were expecting higher corn acres and lower soybean acres and we got that, but the shift was much bigger than expected.

“The cut in soybean acres and the increase in corn acres was much bigger than we had expected which, in general, was supportive for soybeans, but it really surprised the corn market,” he said. “And it wasn’t just the forecast for more acres in 2019, but we also had a little bit larger inventories of corn than we had also expected.”

Those two negative factors - higher acreage and inventory estimates - really hammered the corn market. On Friday, the day the report was released, prices fell 17 cents out of the corn market, setting some new lows for corn prices that day.

For May corn on Friday, March 29, corn prices opened at $3.73.68 and it closed at $3.56.5, down 17.5 cents. For December corn, which also took a hit, those prices opened at $3.98 and closed at $3.84.68, down almost 14 cents.

“Like I said, Friday was a tough day,” he said.

At one local elevator in west central Minnesota regularly followed in this column, as of April 2, the April cash price for corn was $3.23 and basis was $.38 under. October 2019 cash price was listed at $3.37 and basis was $.52 under.

Prior to the report being released the average trade guess had corn acres at 91.3 million acres. USDA’s estimate came in at 92.8 million which was just slightly higher than the largest estimate of 92.7 million. That’s an increase of 4 percent or 3.66 million acres from last year’s 89.1 million acres.

“That was a big increase,” he said.

For soybeans the average trade guess was 86.2 million acres. However, USDA’s estimate came in at 84.6 million acres. That’s a decrease of 5 percent compared to last year’s acreage total of 89.2 million.

“The direction was the right direction, it’s just that the degree was a much bigger than we had expected,” Olson said. “That was kind of a shock to the market. Now, the corn market has been kind of licking its wounds since the report was released, but slowly, in the past couple days, it’s started to rebound a little bit. We’re not at lows, those were set on (March 29), but we’re very close to the low numbers we saw at the beginning of March.”

The beating the corn market took has caused some farmers to rethink and reevaluate not only what they do with the corn they have left in the bin, but more importantly, what do they do for 2019, he added.

Moving forward, Olson said the two big questions people have on their mind is that given all the flooding and the wet conditions in the western Corn Belt, primarily in Nebraska and Iowa, what does that mean for corn plantings? And, are we going to see some adjustments because of the wet weather?

“My personal bias is that I think it’s a little bit too early to be talking about a lot of switching acres or prevent plant,” Olson said. “We have a lot of spring weather left and it’s way too early to try and make any kind of predictions.”

Farmers should realize that planting progress and weather are things that traders and analysts are looking at and trying to figure out and follow as closely as possible, but so far they really haven’t started putting any kind of risk premium into the market for that, according to Olson.

If producers in the southern region and into the western Corn Belt of Nebraska and Iowa start getting behind on spring plantings the first thing they will do is switch to shorter season varieties.

“It really has to be very delayed planting before producers actually stop planting corn and switch to planting soybeans...and we won’t know that for quite some time,” he said, adding that will have an impact on both the corn and soybean markets.

“The other 800-pound gorilla we’ve talked about for a long time is the trade agreement, or lack of, with China,” Olson noted. “We continue to make progress, which is positive, but I know a lot of farmers and some traders are getting a little frustrated that it’s taking so long.”

Olson pointed out that China has promised to buy a lot of U.S. agricultural products. That doesn’t necessarily mean soybeans, which many people automatically jump to that conclusion.

“When you listen to what the Chinese are saying they are looking at a variety of products,” he said, including corn, pork, possibly some wheat and beef products. There also might be some ethanol or DDGs (dried distillers grains) along the way.

“So when the Chinese talk about buying more U.S. ag products, I read that as a variety of ag products. Soybeans will be part of that mix, but it may not be all of it,” he said, adding he feels the Chinese will likely not buy anything until the two countries have an agreement.

“They’ve been coming in and buying some, but I really don’t see their buying habits changing until after we get some kind of signed agreement,” he said.

If and when that agreement is signed, many are thinking/hoping prices will rally immediately. That may not be the case, however.

“For those farmers who are kind of sitting back, waiting for the big pop or rally we’re going to get when this agreement is finally signed, I don’t know if it’s going to come,” Olson said. “I think we’ll more likely get a slow upward movement in prices rather than some kind of big pop.

“From a marketing strategy standpoint, in my opinion the more likely event that will cause a rally in the market will be some kind of planting problem, and that would change the market’s perspective and could give us a lift in prices fairly quickly,” he continued.

“I think we’ll see a more sustained improvement in prices over time after we get an agreement with China,” he said.

On the demand side for corn, ethanol demand has been “okay, though probably not as aggressive as we’d like to see,” he said. “Ethanol prices are slowly coming back. They were pretty rough for a while. Profit margins for most of the winter were pretty ugly. Inventories are down now and ethanol prices are slowly starting to recover. They’re still not great, but at least they’re starting to recover.”

Export sales of corn remain pretty good and that’s kind of the bright spot in the corn market, according to Olson.

The market is also keeping a close watch on South America. The market is starting to get some revised numbers for production of both corn and soybeans out of Brazil. For Brazilian soybeans it looks like the yields are holding up during harvest. A Brazilian consulting company increased its soybean projections a little bit for total production out of Brazil, Olson noted.

“The summer corn in Brazil which is being harvested now is looking pretty good, so they’re going to have an average to slightly above average crop. Argentina is just beginning harvest and early results are mixed. We’ll have to wait and see how that harvest progresses,” he concluded.