Growers hoping for a late Christmas present from USDA on Jan. 12 may get their wish. But don’t bet on it. Unless the government delivers an historic surprise, it’s hard to see corn doing much over the next month. After that, there is hope, however, which may be the best expectation for now.
Farm Futures final survey of 2017 production put the crop at 14.663 billion bushels. That’s up only 85 million bushels, which is less than some bears fear. But there’s no way to paint that much corn as bullish. Ending stocks on Aug. 31 could still top 2.4 billion bushels, and that includes fairly optimistic assumptions about both ethanol and export demand.
There’s no question usage of corn by ethanol plants is strong, despite a slump at year-end. USDA raised its forecast of usage last month but is still likely too low. The biofuel enjoys a competitive advantage to gasoline that’s encouraging blending and the rest of the world is also shifting to greener sources of energy. But the industry is still not growing at anywhere near the rate seen in the boom years.
One of the other reports out Jan. 12, on Dec. 1 stocks, should shed light on feed usage. Livestock numbers are up and cheap corn should keep growth going form that sector. But it’s still hard to shock the market with this number because the industry is so good at mixing whatever is most cost effective into rations.
I’m still optimistic about exports, but sales are off to a slow start. Demand from abroad is starting to pick up, but it will be tough to meet USDA’s forecast. Production out of Brazil is likely to stimulate some buys but that demand may not show up until summer
And then there are seasonal trends. Futures tend to show a little strength into the first part of January, but after that the market faces a turning point. In years of normal production the market typically makes new lows into February. So odds favor a setback.
Both nearby and daily charts hold out some hopes for a rally, and that’s typically what happens too after a bottom is put in. Upside potential isn’t tremendous but March may be able to get back to the $3.60 to $3.65 level. Add in 16 cents carry to July and hedges aren’t terrible, especially if previous sales were made at higher levels.
The best hope for old crop is new crop. December futures show a stronger tendency to rally into March. Potential for a rally to buy acres was more emphatic way back when, but could still come into play this year, albeit in a more limited way. Domestic corn demand is so sold that acreage can slip too much. Returns for corn once again look significantly below beans, which could eventually get the market’s attention.
I’ve previously recommended getting started on 2018 hedges when prices were higher, and plan to recommend more if December can get back to $4. It’s too early to get too aggressive, especially with potential for weather rallies during the growing season. Corn enjoyed five years in a row of above trend yields. Six isn’t out of the question, but volatile world weather patterns could once again be seen.
Growers who think they’ll need help selling can look to the options market, where volatilities are near historic lows. Buying calls at the end of February ahead of spring sales is one of the most profitable strategies in our long-term studies.
For the complete version of this outlook, including supply and demand tables and graphics, along with price charts, download the pdf here.
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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.