We don’t have the exact quote in front of us but one closely-followed, experienced pundit made the comment earlier this summer that producers could very likely be facing sub $3 per bushel prices when they harvest their 20/21 corn crop.
At one time during the early part of the growing season that was probably a reasonable assumption. But things do change, and commodity futures prices are EXTREMELY difficult to predict. What happened to jumpstart the corn rally?
Planted acres shrink
For one thing, the latest planted acreage estimates in the October WASDE report of 91.0 million was reduced 1 million from the previous month and is a sizable 3.5 million below February’s Outlook Forum estimate.
Harvested area shrinks
Likewise, harvested area declined from the February USDA Outlook Forum’s 87.1 million figure to this month’s estimate of 82.5 million. Those adjustments at the 178.5 bpa yield assumption reduced supplies by over 820 million.
Weather dings yields
We were hearing some rather optimistic yield estimates well north of 180 bpa in early summer as U.S. growing conditions evolved. However, Mother Nature took the top end from those estimates as a variety of weather issues hit farms: a cold and wet period at the start of planting season in some key areas; Iowa’s late summer Derecho episode; and unexpected dryness in August.
The net of all these factors along with some “minor” tweaking of old crop stocks served to reduce 20-21 supply ideas by over 1.375 billion bushels between the initial estimates back in May and the most recent one in October.
China exports push demand
The export demand side of the equation began developing in early July when China entered the U.S. corn market in a big way, buying 1.76 million metric tonnes in a single day, the largest sale to a single buyer in 30 years.
By comparison, the Soviet Union made a 3.72 MMT purchase on January 9, 1991. The Soviet Union collapsed less than a year later.
Anyway, the China appetite for U.S. corn has more or less continued ever since, with known sales to China through today totaling 10.5 MMT (approximately 415 million bu.). There’s also another 3.6 MMT sitting in the “Unknown” category with anywhere from 50-70% of that amount likely to be switched to China in the coming months.
Crop failures elsewhere
To make a good story even better for U.S. corn farmers, this summer’s Ukraine crop has not fared well. Last year, this major Black Sea exporter grew a 35.9 MMT crop and the USDA’s first estimate for 20-21 back in May called for production to reach 39.0 million. However, an extremely uncooperative growing season has limited output. Many in the trade had the crop pegged as low as 32-34 million by late summer with USDA only recently trimming its estimate in October to 36.5 million. The reports we are hearing suggest production may be more on the order of 31-32 with some contacts suggesting 30 million could be a stretch.
Considering Ukraine will likely consume and maintain stocks of around 6 MMT, exports could very well fall from 29.2 MMT last year (1.150 bbu) to 26 million or so this year. Ukraine has in the past been a consistent supplier of corn to China; some are of the opinion the U.S. may capture at least a fourth of the corn that Ukraine usually ships to China
Also, Brazil’s domestic corn prices have catapulted to record highs in recent months in spite of a 1 MMT larger crop in 2020. Brazil’s domestic use estimates may be too conservative at just a 2 MMT increase for the 19/20 campaign. July and August are typically Brazil’s biggest corn export months and this year, shipments for the period were 23% lower than a year ago. The pace has picked up since, but November and December will be critical to reaching the 34 MMT total forecast for this year.
Meanwhile Brazil’s soybean crop is going in rather slow with just 16% planted as of October 23rd, nearly 12 points behind the 5-year average. This in turn, could have significant implications on the start of safrinha corn planting and production, since this is a La Nina year).
Cheaper U.S. prices
Further, exporter FOB values have risen sharply in recent weeks to the point where the U.S. is easily the cheapest shop in town. Ukraine quotes are up nearly $30 per MT the past two week to $238 per MT; Brazil’s values are $14 higher at $238.50 and Argentine corn has jumped $25 to $231.50. U.S. values have risen more modestly with the Gulf $18 higher at $221.25 and the PNW, up a similar amount to $232. The net of all this means the U.S. is from $4 to $11 per tonne cheaper in delivering corn to the Far East than are the other origins.
Does all of this add up to a perfect storm for corn right now?
These factors pushed foreign buying to an all-time high with sales as of mid-October exceeding the 1.11 billion bu. mark. With Chinese domestic prices likewise at a record high level, U.S. export prospects look extremely bright and could even improve, depending on the impact of La Nina on South America corn production next spring.
And finally: USDA’s Export Sales Department indicates there are around 125,000 MT of optional origin sales on the books to both Argentina and the Ukraine. Could this suggest the U.S. will be shipping corn to these exporting countries as well? Perhaps in a perfect storm it could happen.
Anyway, thoughts of sub-$4 corn may soon be in the rear-view mirror.