The 2019 corn market is shaping up to be an interesting one. Volatility is a term that can work against prices, but this year that could be different.
“I’m normally a pessimist when it comes to markets. I’d rather be oversold versus undersold in various situations,” said Luke Swenson, president of The Money Farm, West Fargo, N.D. “But I’m getting a little nervous because this is the year, I’m sitting here saying this market is actually shaping up where it could get pretty interesting pretty quick.”
One reason for that is the market is looking at around 1.5 billion bushels in ending stocks for U.S. corn based on around a 92-million-acre number and trend line yields. The interesting thing on that, Swenson noted, is that’s not taking into account some of the good demand the U.S. has had and the number hasn’t been revised as much as assumed.
He added that this year is acting like a late spring that could alter planting decisions.
“We’ve seen a spring starting to shape up like 2009, but it’s only March.
“With that situation, the cards are starting to stack a little bit against big yields early on,” he said. “We’ve got guys still sending us pictures of fields of (2018) beans still in the ground. If that’s the case, then obviously there’s an awful lot of fertilizer that needs to be put on and we’re not looking like we’ll have a great early thaw. Is there going to be some hiccups there that are really going to affect our yield potential? We think that could be the case.
“And we’re looking at what we’re expecting yield-wise on top of that, like if it starts to hiccup further along the line, we don’t think it’s going to give us a big bearish number on corn this year.”
Even though ending stocks are projected at 1.5 billion bushels, Swenson said it can be compared to 2012 when U.S. ending stocks were very tight at 980 million bushels.
“World stocks numbers, if you exclude China’s internal grain they have, are almost as tight as 2012. That year the U.S. was down to almost 980 million bushels, and this year we’re projecting 1.5 billion bushels,” he said. “The big difference between 2012 and now is demand is about 30-40 percent higher. Realistically, that 980 (million) number that the U.S. was at in 2012 is like a 1.3 (billion) now, so what we’re projecting is only 200 million off of that and that’s with trend line yields.
“It’s hard to get bearish on corn,” he added. “That being said, we’re bottom line managers. We push this thing to $4.15-$4.20, we are going to start protecting a good chunk of floors on it.”
Swenson said they did their first 10 percent at $4.05 (December 2019 futures) early around the end of November, beginning of December, but other than that they’re waiting for that $4.25 area.
“We’ll probably be going to be rolling out and doing some puts and calls to keep some upside open on it because we think this market is shaping up to be an interesting 2019 and volatility could be in our favor this year.”
As of March 5, December corn futures were bouncing around $3.97, finally breaking the $3.95 area which held the market for a few months. The market went below that at the end of February and first of March, but then rallied right back to it.
“The market, if we can hold these for the next few days, it’s forming kind of a strong technical river, so that’s what we’re keeping a close eye on,” he said.
At one local elevator in west central Minnesota regularly followed in this column, as of March 6, March cash price was $3.25 and basis was 46 cents under. October 2019 cash price was listed at $3.40 and basis was 53 cents under.
“We’ve told all our producers of corn, beans and wheat today that we’ve got a lot of calls we’ve sold, like $4 May calls, stuff like that that we’ve sold for 8, 10, 12 cents,” he said. “We’ve told everybody on all three commodities to cover them all. Just, technically, we’ve beat this thing up really good and now they’re turning it around. Let’s get out of the way and see what happens coming into spring.”
He pointed out the ethanol market is off last year’s pace. Part of that is Chinese uncertainty which is where some of our good demand has been coming from, and where some of our big wealth is going to come from, according to Swenson.
“Everyone is talking E-15 coming in. We haven’t lost a lot of sleep one way or the other on E-15,” he said. “When you look at the science behind it, the key blend points are E-10 and E-35. It’s like E-15 is actually an efficiency drag. So even though the oil industry is fighting it as you would expect them to being the oil industry, fundamentally it’s not a good blend model anyway. We should be pushing for E-35.
“Until that happens the domestic upside is relatively limited. Margins have been tight all winter and that’s because corn has been holding solid,” he continued. “We didn’t push down to $3.50 futures and sit there like we did last year when crude was down below $50. Now we’re sitting at $4 and we’re in the middle $50s for crude, so that’s hurting us a little bit. But in the near term they’re still chugging along. You’ve seen some of the inefficient plants get shuttered and slow down, but outside of that everyone’s moving along and they’re finding a market for it.”
Dried distiller grains are strong and by-products are helping out more than anything.
Looking ahead to spring planting Swenson said early estimates indicate a lot more corn acres, but he isn’t sure it will be as much as is being projected.
“We’re the fringe area, like North Dakota, northern Minnesota, and getting up into Canada. That’s where you’re going to see the big adjustments that will probably favor one crop over the other,” he said. “When we’re talking to the different seed companies we work with, some of them are excited. Corn sales are up 10 percent. Well, if every corn seed salesman in North Dakota is up 10 percent that’s only half a million acres. Where is this 4-5 million acres some guys say is coming? We don’t think the switch is going to be as drastic as what they think.”