Last week’s USDA acreage report should go a long way to putting the corn market on more steady ground.
When I saw that the USDA had updated their corn acres down to 92 million acres, I admittedly thought that I was looking at the wrong report. This caught everyone off guard, hence the strong bullish reaction in the market. USDA’s earlier figure of 97 million acres of corn, coupled with trendline yields, would likely see the market grind lower.
I don’t think most people really believed we were going to plant quite that much, but a 5 million acre reduction seemed to be an over correction. Planting progress was well ahead of the five-year average which should have only solidified farmer intentions to maintain their crop mix. Additionally, USDA had consistently pulled back acres by as much as 2 million following the March acreage report. This conditioned the market to expect more of the same.
As one of our analysts put it, USDA was simply correcting a previous error of overstating acres.
Now it’s about weather
What happens now will mostly be up to the weather and wouldn’t you know it, there seems to be little consensus on what the short-term weather will do. Some are calling for cooler temps with sporadic rainfall and others are calling for hotter temps.
This is about the time of year that farmers form a weather bias according to what they see in their backyard.
In the last few days I have driven from Iowa down to Arkansas. Central and Northwest Iowa still look pretty good but there are definitely pockets in southern Missouri that look shoddy, especially the later planted crops. Central Nebraska and Western Kansas dryland look really rough. Irrigated acres are holding on but are still struggling to keep up.
Going into July 4th weekend, I thought we were on track for trendline yields but that can change quickly. It is likely that crop condition ratings peaked last week at 73% good to excellent. The lighter ground is already taking a hit although the heavier dirt is getting by as it draws on its subsoil moisture.
If we shave a few bushels off of the national yield, it starts to get interesting.
Heavier quarterly stocks
But before we get to bullish, remember the reduction in corn acres was partially offset by heavier quarterly stocks. The trade was looking for higher consumption, essentially keeping the same volume as last month at 5.224 billion bushels.
This was 273 million bushels more than what the average trade was looking for. This offsets some of the gain in acre reduction.
We see ending stocks coming down to 2.6 to 2.7 billion bushels in the July report, which is still a lot of corn.
What’s next for prices?
We have likely eliminated the risk of dropping below $3, but it doesn’t necessarily mean we are making a beeline for $4 corn. With the weight of COVID-19, it will likely keep a lid on demand. Some 14 million people have lost their jobs since March, folks who won’t take that summer vacation like they used to. Airline travel is still years away from getting back to pre-COVID-19 levels.
As things stand today, I would look to begin targeting new crop sales at $3.75. It is possible we could get another weather hiccup that would give us a boost.
For prices to get back to $4, we will need to see continued high temperatures with limited precipitation. This could very well happen, so be ready to act on it.