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Are any big rallies in the corn picture?

Ag Marketing IQ: Slow planting cuts yields, but June and July weather are key drivers for any possible price jump based on grain production forecasts.

Bryce Knorr, Contributing market analyst

May 27, 2024

5 Min Read
Young corn field
Getty Images/Yevhen Smyk

In a perfect world, grain markets are Adam Smith’s “invisible hand,” using prices to allocate resources based on supply and demand. To be sure, many days futures just look like a big casino – and maybe a rigged one at that.

Still, headed into summer 2024, corn is a puzzle whose pieces are slowly fitting into shape.

This jigsaw is far from finished. But with one corner complete, its picture shows no signs of big rallies.

While delayed planting this spring cut average yield potential for the crop, mixed June and July weather forecasts don’t look especially threatening. If the outlook holds, chances for pricing new crop production at profitable levels may depend on fears of another spike in food inflation that sparks buying from both end users and speculators.

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“Three I States” lag

The first piece of the corn puzzle is mid-May planting progress. USDA reported 49% of corn planted nationwide by May 12, with 70% completed May 19. On a prorated basis, this means 58% was in by May 15, a key variable in the production forecasting model created by USDA that some traders follow.

The model, however, doesn’t use nationwide data, but weights figures from eight Midwest states by harvested acreage. Those states include Iowa, Illinois, Indiana, Kansas, Minnesota, Nebraska, Ohio and South Dakota. Slower than normal progress in the “Three I States” as well as Nebraska, was more than enough to offset gains elsewhere. So, on this adjusted basis progress was 52.7%, compared to the 1988-2023 average of 71.9%.

Timeliness is important, but summer weather is the trump card in this formula. Still, the slower pace knocked nearly five bushels per acre off average yield potential according to the model, which USDA put at 181 bpa in the May 12 World Agricultural Supply and Demand Estimates, its first monthly new crop forecast for the 2024 crop.

USDA uses these model-based yields in the WASDE until farmers and their fields are actually surveyed in August, so for now they’re the headline numbers for all but the most down-in-the-weeds analysts – and there aren’t many of those these days.

USDA may or may not adjust its WASDE yield before August, but here’s how the planting progress number flows through my own supply and demand forecasts.

Will corn inventory get tight enough?

Using March 28 planting intentions as a baseline until June 28 acreage updates, the 176.2 bpa adjusted yield and normal abandonment translates into a 14.404-billion-bushel crop, or 1.6% less than USDA used in May. Rationing feed usage slightly would absorb some of this decrease if historical form holds.

Exports also could take a small hit rather than increase as USDA forecasts. However, much of that demand swings on how production holds up elsewhere. Crops are already suffering in some other producing regions, but harvests are a long way off for the 2024-2025 marketing year.

The final leg of demand is for industrial uses, like ethanol. Demand for the upcoming year looks stable and unlikely to grow much if at all without major disruptions to oil prices, the economy or the pace of EV adoption. All-in-all my model puts projected corn inventories at the end of the marketing year, Aug. 31, 2025, at 1.879 billion bushels, compared to the 2.102 billion USDA printed in May. So tighter, but by no means tight.

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Little June stress

Summer weather will provide the rest of the pieces to the puzzle, at least as far as supply is concerned. The next metric to watch is whether conditions in June stress crops.

USDA economists tweaked their original model after the 2012 “flash drought” came suddenly and early to bake corn fields. But only extreme June weather matters for this metric. Current conditions and forecasts don’t show any need for alarm.

The latest Drought Monitor says only 10% of the corn crop is affected, mostly in northeast Iowa and western Kansas. Abnormally wet areas are also quite limited. June forecasts have above normal temperatures, but not excessive heat, in Kansas and parts of Nebraska, but above average precipitation south of I-80 could help those areas some.

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Forecasts and funds

July temperature and rainfall are the final ingredients in this corn soufflé. The best forecast for that far out is the seasonal outlook for summer, covering June, July and August. While the average summer temperature is a little warmer for much of the Midwest, extreme heat is limited to the Southwestern U.S. Dry weather in the far western part of the growing region is offset by above normal precipitation to the east. Again, the forecasts don’t signal a big threat.

Adjusting averages for the eight states with the three-month forecasts adds a little heat but increases total rainfall, too. The result is a projected yield just over 176 bpa, less than two-tenths under the projection after the planting progress adjustment. That’s not enough to affect the price outlook materially.

December futures remain in an uptrend some 40 cents off late February lows, pointing to a test of $4.9675 highs on May 15. Breaking through the $5 barrier opens potential for $5.15 to $5.65, the top of the contract’s run last summer. That seems like some pretty heavy lifting, with the dollar expected to stay strong, which adds some headwinds.

Much of the March-May rally came from big speculators buying back huge bearish bets against corn, though they started selling again in the latest week. Getting a leg higher likely will take these hedge funds jumping in with both barrels blazing. Craft your marketing strategies now so you don’t get caught in the crossfire If that happens.

Weather rallies are fun to talk about in theory, but in practice taking advantage of these opportunities without shooting yourself in the foot is another matter.

About the Author(s)

Bryce Knorr

Contributing market analyst, Farm Futures

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 Commodity Trading Advisor. A journalist with more than 45 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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