Corn prices, like most other commodities, aren’t where producers would like them to be, but they did get a little bump up recently.
“I’m glad to see that we got a little bounce in the market here and that we’re not going to remain at life of contract lows through the evening,” said Ed Usset, professor emeritus and grain marketing economist with the University of Minnesota, on May 13. “We’re actually up 5 cents right now, but we set life of contract lows earlier and I would say this is creating quite the mess.”
The “mess” was actually created it a year ago, Usset says we seem no closer to resolution now than we were then, with the corn market responding accordingly.
What’s ironic about the market at this time, Usset noted, is that in any other year in mid-May with planting delayed because of conditions being too wet and too cold in the region, prices would likely improve. But that’s not the case this year.
“Planting is behind normal, but I’m not going to ‘kill’ the crop in mid-May,” Usset said. “But certainly this is a normal type of concern we would have and we would expect higher prices and instead we are setting life of contract lows. It’s a tremendous disappointment.”
Usset noted that cash corn prices in southern Minnesota may not be the lowest they’ve been in the last five years when prices have been low, but they are low nonetheless.
“Generally the lower prices we’ve seen have been at harvest, not in the spring of the year,” he said. “This is supposed to be the high time and here we are dabbling with $3.20 cash prices. It’s not fun. It’s not good.”
Usset also noted that the basis is very strong for corn in the upper Midwest and that, to him, simply reflects the fact that the board is so low that farmers, as best they can, are avoiding all sales. No one wants to sell at these prices.
“So your ethanol plants, the people that have got to keep it moving, just have to bid to get it. The basis is doing all the work,” he said. “Thank God we don’t have a 50 cents under basis or we’d be 20 cents lower. The board is not helping us, but the basis is good.”
At one local elevator in west central Minnesota regularly followed in this column, as of May 14, the cash price for corn was $3.29 and basis was 37 cents under. December 2019 price was listed at $3.37 and basis was 48 cents under.
“But at this point, you’re going to sell what you have to sell to pay bills. I’d probably try as best I can to get a little stubborn, that’s what got us here in the first place, but we are playing this out for a lot of acres planted and a big crop coming and nothing says that both will happen,” he said. “We are running late. We might get fewer corn acres, we might affect yields, so at this point I’d get stubborn and, God help us, let’s find a reason to rally.”
Besides the slow planting progress, another factor impacting the market is the ongoing trade war with China which took an unexpected turn in mid-May. It appeared that both sides were getting close to a resolution, but progress toward an agreement nearly collapsed with both sides hardening their bargaining positions.
The two countries raised the stakes by increasing the tariffs imposed on each other’s goods. The U.S.’s existing 10 percent tariff on $200 billion in goods rose to 25 percent, on top of the original $50 billion, with another $325 billion in imports in the crosshairs.
China in turn is expected to take necessary countermeasures against the U.S.
“The new tariffs imposed on $250 billion in goods from China is affecting everything,” Usset said. “This tariff stuff is just psychologically a big, wet blanket on the entire market – equities and commodities.”
The trade issue has been a perplexing one, Usset said, noting that at one point it looked like a trade deal could move prices up or down.
“Oddly enough, I felt that all through the winter prices were higher, I’m not going to say good, but corn and soybeans had come off their lows at harvest and we had a decent rally,” he said. “The whole time I was kind of puzzled because the trade war was going on and it wasn’t resolved. It’s like we were anticipating that at any moment it would be,” he said. “If you’d have asked me five months ago when prices were higher and things were good, my thought at that time was if we announced a trade deal the market will go down, not up, because we had already kind of anticipated something good there.
“Now we’re almost getting to the other side of the equation,” he continued. “This is not working at all. A trade deal could really be helpful right now for the market, but it’s not happening.”
Asked how he thinks the trade issue will resolve itself, Usset answered this way: “I will tell you what I tell everyone, ‘how the heck should I know?’ This is a trade war. This is unprecedented. In my personal history I don’t have anything to point to like the trade war of 1986 or the trade war of 1997 and say ‘this is how it resolved itself.’ I don’t know in the end how or when it resolves itself and what the final impact will be.”
In the meantime the market will continue to watch planting progress and weather conditions in the U.S., harvest progress in South America, and the ongoing trade dispute with China.