Recovery in ethanol production and a gradual rise in export shipments help fuel a post-harvest rebound in corn price.

The USDA, in its September Supply/Demand report, forecast U.S. ending stocks of corn for the 2021/22 crop year at 1.408 billion  bushels. This projection is up 19% from the 2020/21 crop year. The USDA, at that time, forecast a near record U.S. corn yield of 176.3 bushels per acre, along with record corn production in both Brazil and Argentina for the 2021/22 crop year. In addition, a slumping pace of ethanol production and major logistics disruption linked to the impact of Hurricane Ida were being seen. These factors helped to pressure December 2021 corn futures to $4.97 ½ on Sept. 10 - the day the report was released.   

Since that point, however, supportive fundamentals for corn have surfaced. While the forecast of the national average yield has nudged up to a record 177.0 bpa, it has fallen short of top-end expectations due to lower-than-expected results in the key states of Illinois, Indiana and Missouri. Demand trends have also firmed. For example, a notable recovery in ethanol production, driven by exceptionally strong processing margins, has been seen. Ethanol grind for the week ending Sept. 24 of 914,000 barrels per day was the second lowest total since late February and 4.6% below 2019. For the week ending Nov. 5, however, production had jumped to 1,060,000 barrels/day. Which is an increase of 16% over six weeks and 2.6% above 2019. Finally, the pace of exports has gradually risen as logistics at the U.S. Gulf have improved. In fact, the latest USDA Export Sales report pegged weekly shipments at a marketing-year high of 46.0 million bushels. December 2021 corn futures, meanwhile, have rallied $0.73 to close at $5.70 ¾ on Friday. December 2022 corn futures on Thursday posted a contract high of $5.58 ½ and after settling lower on Thursday, the contract closed up one cent at 5.54 ¼ on Friday.

South American weather

Unknown South American weather underscores the importance of controlling emotions in strategy execution. The ongoing La Niña weather pattern bears watching, as some have drawn a correlation between a La Niña pattern and below-trend corn yields in Argentina.

Where to from here? As a student of the market, you know that price prediction is impossible. It is widely acknowledged that a significant percentage of 2021 corn production has already been sold. By purchasing call options at the same time that sales were completed, a producer not only eliminated downside price risk but also maintained control of bushels to participate if a price rebound were to happen. With a price recovery taking place, management of call option positions has taken on added importance in defending net equity on 2021 production. By controlling the emotions associated with a stronger market, a producer not only remains focused on execution but can also begin managing a marketing program for projected 2022 bushels. Your Advance Trading advisor is prepared to assist in the execution of risk management strategies for 2021 and 2022 production.

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