It has been a rough year for corn. First, planting was delayed from the start, then there was prevented plant acres and the weather wasn’t cooperating. Prices picked up a little, but now those gains have pretty much disappeared.
“Corn has taken a pretty good beating here these last three weeks,” said Randy Martinson, Martinson Ag Risk Management, Fargo, N.D, speaking on Aug. 6. “We’ve lost pretty much most of what our spring gains were off of a couple different things.”
One, he pointed out, was improving weather conditions. The Corn Belt, as well as the Northern Plains, has seen cooler temperatures as the crop is going through the pollination stages. These cooler temps certainly are helping the crop to pollinate as best as it can given the rough start that it had.
“The crop is behind still by about a week or two, depending on location, meaning it’s going to take a little more extended period of time for the pollinating season than what we normally would see” he said. “But so far we’re starting to see enough rain to stand with it and that’s kind of taken away the shallow root argument in some of the areas, especially up here in the Northern Plains.”
That said, Martinson said the crop is improving.
“It certainly does look nice for the most part, but it’s about two weeks behind, which still has us a little concerned about an early frost potential,” he said.
“We’re also seeing, because of the run-up in price that we’ve had, a downturn in demand. Ethanol demand has slowed down dramatically,” he continued. “We’ve seen that in ethanol reports as each week it’s a little bit lower production estimate. We’re seeing stocks build for ethanol.”
Adding to the woes is the fact that the most recent round of trade talks with China has also broken down. Talks had broken off in June, but the two sides decided to try again in late July, but now those have fizzled out as well. The fact that China is coming out and saying they’re going to suspend buying products from the U.S., that has hurt the U.S. ethanol market a little bit as the U.S. was very dependent on China.
Martinson said it sounds like Brazil might come in and take care of some of that, but that’s not finalized yet, although it is something that’s in the works.
Exports are another thing for corn that has slowed down dramatically. That’s partly because of the huge crop Brazil has and they’re exporting a little more aggressively than what the U.S. is and that’s caused a little bit of concern as well, according to Martinson.
Martinson also pointed out that traders and producers are starting to turn their attention to USDA’s upcoming report on Aug. 12. He explained that USDA re-surveyed 14 Midwestern states, including each of the key corn and soybean production states, after USDA’s June Acreage report gave traders higher than expected corn acres and lower than expected soybean acres. Most traders, he said, expect the USDA report to have a reduction in corn acres and an increase in soybean acres.
“Overall, we still don’t know where acres are at. The estimates are still coming in that we’re going to be looking at somewhere between a 6- to possibly 8 million acres of prevented plant,” he said. “That acreage report certainly will be what sets this market off here. That will be the next big report we’ll see, whether it’s to the downside if it’s a bearish report or the upside if it’s a bullish report. Right now, it’s hard to believe that it can’t be friendly, but I guess we’ll see when that report comes out. That’s going to be the main driver of what happens to this market as we go into the late summer, early fall.”
What would make it a bullish or friendly number?
“I think any acreage reduction to corn of anywhere between 3-4 million will be friendly,” he said. “It’s unlikely USDA will come with the full number right away in this report. I think it will take a couple reports before they get to the actual number where corn acres are going to be. But I think it has to be somewhere between 3-4 million, maybe even a little bit lower yield estimate down from 166 (bushels per acre) to 165, maybe 163, somewhere in that area would certainly help. We need to see the production estimate drop by a combination of seeing acres cut and yield.”
As of early August local cash prices were $3.75 a bushel. Basis has started to widen a little, but nothing fantastic, Martinson noted.
“Producers are little more comfortable now selling product because they’re a little more assured that they’re going to get a crop, so that has kind of opened up the grain bins here in the west,” he said. “The east, especially in Ohio, they still continue to have their bins pretty much welded shut, but basis levels across the U.S. have seen a little bit of a downturn.
“For corn, our basis there has been fairly good, that’s anywhere from 20-30 cents under at end user places, but 40 cents under at elevators so definitely a lot more advantageous to lock basis levels in for corn.”
At this time Martinson is advising producers to hold on and see what the USDA report holds.
“We expect it to be friendly and we still think there is some upside potential in the corn market,” he said, adding there definitely are some issues out there including normal frost, which would be the end of September which would certainly hurt this crop, not just in the Northern Plains, but it will get down into western parts of the Corn Belt as well.
“There’s still a lot of more unanswered questions of how this crop is going to come out of this than there are answers at this point,” Martinson said. “I think it’s enough to continue to roll the dice and then hold off. Now, if December corn drops down below $4, which we’re kind of flirting with after the last sell-off, then we start talking about a different game. Then we might want to start throwing some puts in place just in case this thing completely erodes.”