Corn

The two topics the corn and soybean markets keep coming back to are trade relations and the weather – two things that continue to influence market direction.

Starting with the weather, cool wet conditions all spring long have caused planting delays and affected planting decisions. With fewer corn acres anticipated in the upcoming final planted acreage report, corn prices have seen an increase and more volatility is expected.

“The corn market has stabilized now a little bit, but I think we will continue to have some volatility all summer long,” said Frayne Olson, grain marketing economist at North Dakota State University. “But we’ve now reached the end of the planting window for corn pretty much across the U.S. The time to make a decision on whether you do prevent plant or continue to plant has pretty much passed.”

For a good portion of mid-June the weather had been drier, but conditions are still not dry, Olson noted, adding that weather during the third week of June was not very favorable for corn even though there were areas that did have opportunities to try and get some additional acreage in. He also pointed out the eastern/northern Corn Belt in Illinois, Indiana, Ohio and Michigan remains the epicenter of all the problems for corn.

“Zeroing in on the eastern Corn Belt, which is where most of the issues are because of the moisture and where things are setting up, the forecast is not really calling for any major systems to come through, so it’s looking drier, but coming off of all the wet we’ve had, it’s still not dry,” Olson said, adding the weather forecasts are going to be pretty important for corn.

“We’re hoping to get a little more heat to come into the area, because even though we may have gotten a little more planting done, we’re still well behind, especially the pace we had last year,” he said. “We’re well behind normal growth and development, so we’re going to need some decent weather now for the rest of the growing season. We’re never going to completely catch up, but we’re hoping to prevent any major problems when it comes to early frost or at least maintaining some yield potential.

“The corn market is taking a breather right now, regrouping and recollecting on where we’re sitting, where crop conditions are going to be,” he added. “Now it will be more about the ratings and how the crop is progressing rather than ‘did we get the crop planted?’”

Two major reports from USDA were coming out the end of June – the final planted acreage numbers and the quarterly stocks report. For corn, Olson said the quarterly stocks number is really important as it is used as some sort of measure to find out how much is getting used up in the livestock feeding sector as well as exports and ethanol.

On exports and ethanol, weekly updates are provided so the market can calculate approximately how much corn is being used, but the feed usage number is very hard to come by and very hard to get accurate.

“The corn market is sensitive to that because we don’t have a good measure for feed usage other than historical rule of thumb. The corn quarterly stocks number will be important, but will likely be overshadowed by the acreage report for obvious reasons, but it’s still going to be important.”

One of the things Olson said he will be looking for is how much corn, soybeans and wheat are left on the farm as of June 1 because that will give a pretty good indication of how much grain has to move through the system before harvest.

On the issue of trade, Olson said the U.S. is still working through negotiations with China as well as with Mexico and Canada. He pointed out that China’s President Xi and President Trump will meet at the upcoming G2-Summit to discuss the ongoing trade war. Prior to the two leaders meeting, chief negotiators from both countries will meet to set up some talking points on the key issues.

Trade talks broke down over a month ago and Olson said it’s a positive sign the two countries are re-engaging, but he didn’t want to mislead anybody as there are no expectations that there will be an agreement at the end of the meeting.

“At least it’s a positive thing,” he said, adding there’s no timeline for this.

On the USMCA front (U.S./Mexico/Canada Agreement or NAFTA 2.0), the Mexican Senate has voted in favor of its passage making Mexico the first of the three countries to officially authorize the agreement. The Canadian Parliament is in recess until September, but USMCA is expected to pass when it reconvenes. Although there are some questions/concerns, they don’t seem to be large enough to get in the way, so the expectation right now is that Canada will move forward on passage.

In the U.S., Olson said it’s very unlikely that the U.S. Congress will bring USMCA to a vote before the August recess, adding there are some questions/concerns about passage on both sides of the aisle about certain provisions.

“It’s a little cloudy about how the U.S. is going to approach this. We can always hope that lobbying efforts go well and that we’re able to move something through and make it the official law of the land, but it’s not there yet,” Olson said. “The USMCA is really important for the corn and hog markets just because Mexico is the number one buyer of U.S. corn and the number one buyer of U.S. pork. And, historically, they have been number two for U.S. soybeans so the neighbors to the south are very important customers for us.”

On the demand side, the challenge for corn exports is the two numbers USDA is putting out, one for old crop exports from 2018-19 and then the forecasts for new crop which was just put in the ground. USDA did cut the export estimates for old crop corn by 100 million bushels. USDA also dropped exports for new crop corn by 125 MB.

Looking at local corn prices, as of June 24 immediate delivery price for old crop corn was $3.90 and for harvest delivery the price as $4.01.

“There isn’t much carry in the futures. Basis levels are very similar, but the futures are higher.” Olson noted, adding that corn futures for July closed at $4.47 and for December at $4.57.

At one local elevator in west central Minnesota regularly followed in this column, as of June 25, the July cash price for corn was $4.22 and basis was 29 cents under. December 2019 cash price was listed at $4.21 and basis was 40 cents under.

“For corn producers, I really think farmers should seriously look at cleaning out bins of old crop corn,” Olson suggested. “Is there still some upside potential? Yes, but what’s happening is that as prices were going up we did get some farmer selling. In listening to some elevator managers more recently some of that farmer selling is tapering off.

“Farmers, I think, are getting a bit more optimistic that prices will keep going up so they want to hold back and wait,” he continued. “I’m not saying that’s a bad strategy, but I think it’s a risky strategy. If everybody starts doing that I think we’re going to have some basis problem as we get into the middle of the summer.

“I know why farmers (in the region) are being a bit more cautious about pricing their new crop because we have a long growing season ahead of us, but what I’m trying to get at is that this is the highest prices in three years we’ve seen for old crop corn that’s in the bins,” he said. “If you want to gamble, I understand why you’re less comfortable doing a lot of forward pricing on corn that’s in the ground right now, but you know how many bushels you have in the bin and you know exactly how many bushels you can sell and I keep asking farmers the question - what are you waiting for? Higher prices is not a good answer. They can go down too.”

Another factor the market is looking at is corn from South America. Brazil is a major competitor of the U.S. in the corn market and has a very good crop coming.

Brazil had a good summer crop and their winter crop, which is being harvested now, looks to have very good yields so the U.S. will have good competition in the world market.

“We’re not the only country that can sell corn, and we still rely heavily on exports for our corn supplies,” he said. “I understand why farmers are optimistic price-wise given what’s going on in the Corn Belt, but if they’re wrapped up in ‘oh, it needs to go higher,’ but all of a sudden it can go lower because we forget about all these other conditions.

“Exports, ethanol and feed demand, each of those is sensitive right now to higher prices so the question is how high can they go before buyers back out?” he asked. “We’re caught up right now in this euphoria of higher prices and, at least in the Northern Plains where it looks like our crop is progressing though it’s still a little behind and there’s some concerns about that.

“But I’m looking at old crop corn and you’ve got to move that old crop corn out of the bin before harvest to make room. I’m worried that by the time we get into mid-summer and everybody holds and stalls, that we’ll have a lot of grain moving in the middle of the summer and basis levels are going to suffer,” he added.

“I want to caution everybody not to get overly bullish.”