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Corn markets: When will the doldrums end?

The corn market continues its lackluster performance.

Whether we’re talking about old crop or new crop corn, it’s been disappointing of late for those hoping for a rally.

Coming into 2020, there was a fair bit of optimism as producers saw a Phase I trade deal benefitting the corn market as well as the January USDA report possibly having the same effect. As we moved through January, those looking for a rally were sorely disappointed, and hopes for a better spring insurance price in the month of February are starting to fade.

With the month of February (crop insurance) seeing mild support the last couple of years, it wouldn’t surprise me to see us trend back closer to $4 this month. If that opportunity presents itself, know what your plan is to manage some price risk. With talk of huge corn acres in 2020, it seems to be keeping a lid on prices. While I’m not bearish, I know the closer we get to $4, most producers I work with are in the black.

For the week of February 3rd, we saw December corn rally back up three cents and settle at $3.94, but the average price so far - one-quarter of the way through the month - is still just $3.92. Given our insurance price in 2019 was $4, I know many producers who were hoping we’d see an average price at least as good as a year ago.

However, I must caution producers to not only look at the price of corn. Given fertilizer costs continue to ease, the producers I work with are seeing the ability to pay for more inputs if given, for instance, a Dec corn price of $4.

While I realize Dec isn’t $4, there’s no question we can look at a similar situation as far as profit margins go in comparison to where we were just a year ago, due to lower inputs. With diesel fuel prices currently as low as we’ve seen them in the past year (with farm diesel in my part of the world hovering around $2), producers are getting some relief there as well.

Long story short, when it comes to Dec 2020, prices below a year ago by only 6 cents isn’t as bad as it may seem.

Old corn gets complicated

For old corn, it is somewhat complicated. I struggle to get too bearish on a person’s cash corn, but this past week we saw a fair bit of pressure on March corn at mid-week with prices down to $3.76.

With March corn testing support, fears we could quickly drop another dime were being tossed around on Thursday during trade. Fortunately, buying came in and corn closed a couple off of the low, giving a moral victory to corn bulls heading into Friday’s trade.

Following that better close on Thursday was a solid showing on Friday as March settled at $3.83 ½. My gut feeling on old corn is the flat-cash value of corn will remain supported. However, there’s no way of telling whether that translates to a price rally on the board or simply more solid basis levels.

I’m of the opinion that basis could be forced to do the heavy lifting. With every rally getting sold, keeping futures price range-bound, it may take Chinese purchases or a ‘surprise’ from the generally calm February USDA report to light a spark in this March corn market.

I know with the plethora of basis contracts out there this is not likely what many want to hear, but these markets have been dead. As you get close to making the decision on whether to roll to the May or liquidate, know what the cost is and know what your objective is to finally move those bushels.    

Reach Matt Bennett at 815-665-0462 or mbennett@agmarket.net
 
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