The soybean market made plenty of noise over the past six months. Corn, by contrast, has been a pretty quiet, if not dull, affair. Don’t look now but corn may be ready to generate a little more excitement.
Both old and new crop charts show promising signs, and supplies continue to slowly tighten. If the rally in soybeans proves to have legs, corn could ultimately benefit from the need to maintain acreage in the year ahead.
USDA’s Dec. 11 supply and demand report likely won’t provide any fodder for bulls. The estimate I gave wire services earlier this week suggests the opposite may even be true, at least temporarily. Less corn was used to make ethanol in the first quarter of the marketing year than in 2017, which could cause the agency to raise its carryout estimate 25 million bushels.
If that happens, the reduction may not last long. All indications point to lower yields when USDA updates its production forecast Jan. 11. I’ve put my own estimate 1.7 bushels per acre lower than USDA, and will update it again when we release results of our latest grower survey Jan. 4. Whatever yardstick you use – crop ratings, vegetation health index maps, weather models, or our Feedback From The Field feature-- all are even lower than my current estimate.
Still, yields should come in above normal for the sixth straight year. Therein lies part of the problem for corn. Supplies on Sept. 1 should be down for the second straight year and continuing dropping in the 2019 marketing year if yields return to average. But those good yields are keeping the market from generating much in the way of rallies.
World feed grain stocks, measured by the number of days’ supply outside of China, are even tighter following smaller crops in Australia, Western Europe and Russia. Until this year that would likely have triggered better prices here. But end users appear to have gotten comfortable believing the world won’t run out of corn and aren’t ready to buy aggressively.
Charts could begin turning bullish as soon after the USDA report, when March takes over as lead month on the continuation. Futures appear to have made cycle lows shortly after Thanksgiving and likely have a couple more weeks to run.
Corn basis is strengthening now that the crop is tucked away and prices are unprofitable. The difference between corn and soybean basis is indicative of the supply and demand scenarios each crop faces. My projected stocks-to-use ratio for 2019 suggests potential for rallies to profitable levels that should help old crop too. Forecast selling ranges also look good.
Nonetheless, the new crop soybean-to-corn ratio is moving towards soybeans since the G20 trade truce between the U.S. and China. In fact, even with weak bean basis and better corn basis, futures show beans with an advantage over corn, though both crops would still lose money. December 2019 tested its summer-fall resistance line on Monday’s rally and is finally back above $4.
I’ve recommended being a slower seller of corn than usual because I don’t believe in selling at a loss. The clock will start ticking on that premise eventually, but it hasn’t yet. But make sure you know where your break-even is, and don’t hesitate to sell it if achieved.
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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.