Although there was a small bounce in the market in late-May, corn prices have continued to be low.
“We’re getting a good little bit of bounce this morning,” said Luke Swenson, president of The Money Farm, West Fargo, N.D., on May 26. “We’ve been beating a dead horse the last few months. Realistically, we’ve got four or five black swans going on at once, so in the middle of that, everyone is trying to figure out what’s going to be the next tipping point that changes the markets one way or the other.”
With so many variables in the market, Swenson said there’s a lot of paranoia.
“If we get good export news from China, people get paranoid on coronavirus news. If we get good ethanol use, people get paranoid on China, and that’s going to continue to happen,” he said. “You’re going to continue to see people fight away from getting optimistic just due to the fact we’ve got big stocks. Until we’re sure that demand is going to be out there and running, there’s no reason for anyone to really get behind just a big buying push.
“With corn having the most burdensome stock potential of all of them, rightfully so, they’re going to set you down at lower levels until they’re proven otherwise that they don’t need to be this low,” he continued. “That’s the story there and I don’t think it’s much of an original story that’s going to change in the near-term.”
With that though, Swenson feels acres are going to get revised, especially considering where intentions are in North Dakota, where seed returns “are all the fun stuff we’re dealing with there as we’re officially reaching final plant date.”
“You’re going to see a good chunk of corn get PP’d (prevented plant), so with that you’re probably going to see ‘intentions’ go up in the USDA reports because guys are going to maximize the base acres and prevented plant corn on the stuff they want PP’d,” he said.
However, he feels planted acres will probably come in closer to the 94 million acre range.
“If I told people to pick a number from 94 (million), they’d take the ‘over’ instead of ‘under.’ I think within 400,000-500,000 is going to be pretty accurate unless for some reason the markets surprise us in the next couple weeks to get people excited there,” he said. “The nice thing is that will shave a few hundred million off of ending stocks, but that’s still only pushing you to just out of the ‘3’ number on ending stocks, so it’s still not building a big bullish case.”
The market is really going to need to see China come back in and ethanol ramp back up, according to Swenson, adding that the ethanol industry is adding five or so ethanol plants back into operation a week, with plants sitting at 70 percent crush.
“Coming out of that, we’re going to feel the need for fuel demand to come back up and everything is going to be riding on this second wave of coronavirus,” he said. “If it’s a gentle exit and we don’t have a second wave, I think you see everyone in the world road tripping this summer, anxious to get out, go see the world and travel and burn some fuel. Well, that will be good for demand and that will actually help us ramp up ethanol demand and keep us chewing through this stuff. Then, hopefully, with that you see China come out buying, starting to fill back some stocks and see the world pick back up again.
“But like we said, the downside is you’re still playing with four or five unknowns here and how much money we have to print to keep the economy going in the midst of it,” he continued. “So the number of variables are just wild. Corn, I think, is going to be the last one to rise and that’s because of our own doing. We’ve built up some big stocks and we seem convinced to continue to throw acres at it despite prices going into this year, as well.”
Ending stocks are currently at 3.32 billion bushels, according to the May report from USDA, and that’s where the market is still figuring off of basically a record yield and 97 million acres.
“Remember, the downside is that it’s easier to assume a record yield when you’re running lower acres, so with North Dakota pulling a couple million acres out, that actually supports the yield estimates a little bit because you have a higher proportion of acres in the country as bigger yielding acres,” he said. “However, we are starting to get some weather issues across some areas of Illinois with their 10-12 inches of rain over the last week and a half, but overall, we’re off to a good start. There’s no need to be concerned that we shouldn’t be expecting a solid yield to start.”
Swenson wouldn’t recommend producers make any marketing decisions at this time.
“We don’t want to see markets go lower when you’re sitting here bouncing right at crop insurance levels,” he said. “In all reality, in our neck of the woods in the upper Midwest, we have a big negative basis, (and) the worst thing that could happen is you finish a revenue harvest price option right at about 80-85 percent of last year. Once you hit that point you want it to keep going down because everything is going to get bought and your revenue check will be at zero basis. You’re going to recapture basis if you start filing a claim.
“We sit and look at the risk/reward versus hedging here versus letting it ride, and it heavily favors letting it ride. Because even if it falls off a little, it will actually probably support the revenue numbers. It will hinder acres for next year and you’ll get your revenue check coming out of it,” he added. “I know it’s not a money-making revenue check like some of the years in the past have been, but you basically own a turn in the market and you’ve got that in place all the way through Thanksgiving.”
Looking at local prices, at one local elevator in west central Minnesota regularly followed in this column, as of May 26, the June cash price for corn was $7.93 and basis was -57 cents under. October 2020 futures price was listed at $8.59 and basis was 4 cents over.