Green corn reaching for the blue sky. lamyai/ThinkstockPhotos

Corn Outlook - What is corn really worth?

USDA report could set stage for another leg higher.

Beauty is always in the eye of the beholder, but what if that beholder is distracted? That’s just one of the issues facing the corn market headed into the biggest day of the summer.

USDA releases its first estimate of production based on surveys of farmers and their fields Aug. 10. If our latest Farm Futures survey is right, a crop of 14.362 billion bushels would fall nearly 475 million bushels short of demand. Stocks would tighten over the next year, raising average cash prices and creating potential for rallies back to profitable levels for the average grower. This week’s supply and demand model puts the projected selling range at $4.27 to $4.63.

 

This week’s supply and demand table isn’t as optimistic as USDA on old crop carryout due to weaker exports and feed usage. But 2018 production could be lower than demand, tightening carryout and raising average cash prices.

Of course, plenty could go wrong with these optimistic assumptions. The crop may be bigger, for one. USDA’s weekly crop ratings and our analysis of the latest Vegetation Health Index maps suggest potential for 180 bushels per acre, though weather models are in line with the 175.4 bpa our survey found. 

Demand could falter too, especially with higher prices. Old crop exports and feed usage may not be as robust as USDA forecast in July, for starters. Global production could also be higher than we anticipate, despite heat and drought that’s baked crops from France to the Black Sea.

Hot dry weather in Europe pulled Paris futures to a series of new contract highs that could also open the door to good exports of 2019 corn.

 

Then there’s the elephant in the room: Trade tensions with China, and uncertainty over the future of NAFTA. China doesn’t import much corn from the U.S. but Mexico is our number one market. Expectations that growers will plant more corn due to lower soybean prices could also weigh on sentiment.

Growers do have seasonal trends in their favor, at least in the short run. December futures have a tendency to move higher after the August report, though harvest pressure usually begins to weigh down the market in September.

Seasonal trends for December corn are positive on average after the August USDA report, but have trouble matching those highs for the rest of the marketing year.

 

December is trying to consolidate ahead of Friday’s reports. If it can hold the July uptrend, rally targets come in around $3.95 and $4.10. Toss in 20 to 25 cents carry to July 2019 and profitability could be close if yields are a little better than expected. The recent Commitment of Traders confirmed the recent gains came from short covering. Funds still have around 50,000 contracts to liquidate to get back to even, which could be enough to trigger just such a move.

 

Big speculators still have room for short covering if the USDA report is positive.

With no real weather rally this summer, locking in profits has been elusive. I recommended forward pricing a little more 2018 production with July futures or HTAs to get to 30% covered. December 2019 may be offering a little better value, and it’s time to get started on next year with a 10% sale as well. 

Growers hoping for more may be rewarded. But seasonal trends show July futures on average doesn’t take out the August highs, grinding lower into spring, maybe longer. One alternative to pricing a lot of the crop soon may be just to sell two strike out-of-the-money July 2019 calls. These would cap the maximum selling price at around $4.50 futures, but earn premium to defray the cost, and risk, of waiting. 

Download a complete version of the outlook with extensive charts and analysis using the Download button at the end of this report.

More from Farm Futures:

Weekly Fertilizer Review
Weekly Energy Review
Weekly Basis Review

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.

TAGS: Outlook Corn
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