Whether or not the corn market has mettle into harvest should be easy to tell. Charts provide clear direction for the market’s short-term trend.
December corn made a spike low Aug. 31 at $3.4425, a level it held in the wake of USDA’s Sept. 12 crop report. If that level doesn’t hold, futures face another quick test at the $3.4125 expiration settlement for September futures last week.
Weakness now isn’t unusual, of course. Stretching back more than four decades, December moved lower from mid-September into the first week of October two out of every three years.
USDA’s last report wasn’t all bearish for corn. The agency raised its forecast of 2017 yields by four-tenths of a bushel per acre to 169.9 bpa. That added 32 million to the size of the crop. Some of the increase was offset by lower Sept. 1 ending stocks carried over from the 2016 marketing year. Exports turned out stronger, though ethanol usage declined as we anticipated. Slower growth in ethanol estimates could extend into 2017-18, adding another 30 billion bushels to carryout a year from now. USDA put that number at 2.335 billion bushels, down 15 million from 2016-16.
With stocks-to-use around 15%, a 55-day supply, there’s no reason for prices to be significantly higher. Production may not be as big as USDA forecast Sept. 12. But the last six years haven’t seen big adjustments. So far, only anecdotal evidence, such as our Feedback From The Field feature, showed any decline. Vegetation Health Index maps for corn we put together showed a big drop, but that is typical this time of year as the crop matures. Warmer and drier weather in the first half of September may be responsible.
My supply and demand table shows potential for increased demand, but even a decrease of a couple 100 million bushels wouldn’t change the dynamic much. Prices would struggle to get back to profitable levels.
Nonetheless, most years futures get some type of harvest bump into the end of October, and basis typically firms longer as end users must bid up cash prices to convince farmers to sell. Getting July 2018 back to $4 isn’t an absurd notion, even if the market makes new contract lows in a couple of weeks. With the average cost of production around $3.80 a bushel nationwide, those who have some corn priced already with futures or HTAs can roll those to July and wait for basis to strengthen. December-July carry went out to 27.75 Monday, encouraging that process.
Existing sales coupled with modest storage returns could bring a profit, or close to one, for the average grower, even without a big rally. Weather around the world ultimately could bring a little more. Dry conditions in Australia could hurt wheat yields there more than anticipated, and the winter wheat crop in the Black Sea faces dry soils already. Argentina tends to see lower yields during La Nina years, and the cooling of the equatorial Pacific is now forecast to develop through winter. Even if moisture returns seasonally to Brazil, seeding of second crop “safrinha” corn could be delayed, pushing back development further into the dry season.
The other positive sign for growers comes from history. In years with similar years of supply and demand, weak basis at harvest brought better returns from storage. The key is to not fall in love with that corn. My research shows most of the net gains from storage on average come by the end of February.
For the complete version of this outlook, including supply and demand tables and graphics, along with price charts, click the “Download” button below.
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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.