Corn futures have crawled higher over the past two weeks. Emphasis on crawl.
July corn futures hit a low of $3.09 on April 21 in the midst of the ethanol shut down. On April 29, July corn futures retested that low price area on daily charts and finished the day higher. July futures posted a bullish reversal on daily charts, which is often interpreted by technical traders as a bottoming signal. Prices have been very cautious to rally on just this technical signal alone however, as bountiful U.S. corn supplies seem to be on the horizon.
During the peak of the COVID-19 crisis, crude oil futures plunged, taking ethanol prices along for the ride. Ethanol plants closed or ran at lower production levels for weeks. Things on the ethanol front seem to be improving! More states are opening after the quarantines have eased. More cars are back out on the road.
While we are far from pre-COVID driving levels, gasoline demand is increasing. On this week’s EIA energy stocks report, ethanol production used an estimated 67.1 million bushels of corn in the week ending May 15, versus 62.5 million last week, versus 109.2 million 11 weeks ago and 106.8 million in the same week last year.
Production rose for the third week in a row to 663,000 barrels per day in the week ending May 15, up from 617,000 the previous week, up 23.5% from the low of 537,000 three weeks ago, but still down 38.6% from levels seen 11 weeks ago.
Ethanol stocks fell for the fourth week in a row to 23.6 million barrels in the week ending May 15, versus 24.2 million the previous week and 23.4 million the previous year.
In the May, 2020 USDA WASDE report, corn use for ethanol for the 2019-20 crop was pegged at 4.95 billion bushels, down from 5.05 billion bushels the month prior. USDA has appropriately acknowledged the lost demand. Looking ahead to the 2020-21 crop year, USDA feels corn demand for ethanol will improve with corn use pegged at 5.2 billion bushels.
Fewer spring delays
Thankfully this spring has been nothing like last year’s delays. In fact, on the recent weekly Crop Progress report, it was revealed that U.S. corn acres are 80% planted, well ahead of the 5-year average of 71%. This is the other reason that corn prices are only just crawling higher on daily charts.
Even though daily corn futures charts are showing technical bottoming signals, with a lack of a planting delay, corn futures are having a hard time finding momentum to climb higher. But all of that might start to change next week, and here are two words as to why: North Dakota.
North Dakota’s wet weather debacle
Producers in North Dakota continue to battle the aftermath of the 2019 wet weather debacle. With the late harvest of 2019 crops that were still being harvested yet as of last week, spring corn planting has been extremely delayed.
Only 20% of the corn crop in North Dakota is planted versus their five year average of 60%. This is extremely significant as the prevent plant date for North Dakota corn is coming up in a few days on May 25. (Four counties have until May 31.)
Looking at the recent wet weather, it seems unlikely that North Dakota will make it to 50% planted by the next weekly Crop Progress Report, which will be released n Tuesday May, 26 (one day late due to Memorial Day).
Here comes the next twist: According to the March 31 Prospective Plantings Report, North Dakota was expected to plant 3.2 million acres of corn. The question then becomes will the producers in North Dakota plant corn past the prevent plant date this year? Or will they opt for prevent plant payments instead? Many feel they might take the payment this year, especially with the low price of corn.
Here is a scenario to consider. Let’s say North Dakota plants 70% of intended acres, and 30% goes into prevent plant. That would take roughly 1 million acres off the expected 97 million acres of corn expected to be planted in the U.S. this spring.
Assuming no changes in demand and using 96 million acres of corn to be planted rather than 97 million acres currently projected by USDA, corn ending stocks would be reduced slightly to 3.138 billion bushels. This helps to reducer that large carryout number, but hardly justifies a substantial summer price rally in and of itself.
Summer weather rally?
Most years, there is some sort of a summer weather event that spurs prices higher and allows for pricing opportunities for old crop and new crop corn. Some meteorologists are starting to change their tune about summer weather patterns. Earlier this spring many meteorologists were suggesting mild temperatures and timely rain for this summer, but now some are forecasting above normal heat for the Midwest with below normal precipitation in the western Corn Belt, and a soggy summer for the eastern Corn Belt.
Currently the USDA is projecting corn yield for the 2020-21 crop year at trend - 178.5 bushels acre. If there is a weather issue and yield is adjusted lower, ending stocks will be adjusted lower, too. Using 96 million acres planted, and yield of 175 bpa, ending stocks come in at 2.828 billion bushels. Should yield be 172 pba, then ending stocks come in at 2.562 billion bushels.
So while outlook for corn prices are starting to improve, and while technically speaking it does seem like corn futures are bottoming, it will take a very significant weather issue here or somewhere else in the world this summer to allow for a significant price gain for corn futures.
Remember, three-fourths of the world’s corn is grown in the northern hemisphere, so there is plenty of summer weather drama potential ahead.