Decision time is here.
Most growers likely have made up their minds on what to plant this spring, though more acres could be in play this year than usual. Soybeans still look better than corn, from just about every angle. The soybean to corn ratio for both current new crop futures and Revenue Protection base prices have corn at a disadvantage. Soybean losses cap out around $55 an acre for the average grower under most scenarios, compared to $120 for corn.
USDA releases its Prospective Plantings report March 31, and we’ll weigh in a week before with results of our latest grower survey currently underway. Without some big changes, it looks like the 90.5 million acres growers were planning in January still looks right. That means 2 billion bushels of corn or more could be left over on Aug. 31, 2018.
That’s less than the projection for the 2016 crop, but still more than enough. As a result, without a surprise March 31, getting prices to profitable levels depends on weather. That’s the case most years in supply-driven markets.
Some growers have made a few sales of 2017 corn, but most are betting on weather rallies. The odds of that may have dropped a little last week, when U.S. meteorologists raised their odds of El Nino developing by the fall. While prospects for the warming of the equatorial Pacific are still little more than a 50-50 proposition, U.S. corn yields were above average in two of every three years when El Nino was noted by fall.
Counting on the demand side of the balance sheet for help is also betting against the odds. USDA raised its forecast for ethanol usage by 50 million bushels March 9, in line with my expectations. That was offset by a cut in feed usage due to larger supplies of DDGSs and sorghum. Exports will face a lot of competition this summer they didn’t have a year ago from South America if USDA’s forecasts hold true. The agency bumped up its forecast for Brazil and Argentina by almost 200 million bushels.
That corn is still in the field, or, in some places, still in the bag. Argentina appears to be turning drier for the next two weeks, and winter in Brazil for the second crop there can also be perilous. But barring a repeat of last year’s troubles, demand from abroad also looks capped.
These prospects aren’t new, which is why I sounded the alarm bell recently, noting the seasonal tendency for old crop to top out in early March. While I’ve recommended being 80% priced, a lot of growers are still holding on to a lot of corn. If you’re in that boat be prepared to pay the price if the market can’t rally, or start making regular sales in a disciplined way.
Both old and new crop price charts are battling support after their six-month post-harvest rally. December stands a better chance of holding on now to avoid losing more acres. My fundamental model, as well as average trends, suggest potential for a rally to levels that can be sold by the average grower for a profit – around $4.45. Plan to start at $4.20. While the U.S. has enjoyed four straight years with above average yields, it recorded six in a row from 1996-2001. So five would not be unprecedented.
The swing factor may be outside money. Big speculators trimmed their modest bullish bet on corn again last week before the USDA, and sold more aggressively afterward. But corn still shows a correlation with the stock market. If the bulls want to run on Wall Street due to ideas of a growing economy – and an uptick in inflation – they may hold on to their interest in owning commodities as a hedge.
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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on corn farming, basis, energy, fertilizer and financial markets feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
For more corn news, corn crop scouting information and corn diseases to watch for, follow Tom Bechman's column, Corn Illustrated Weekly, published every Tuesday.