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We added a dollar per bushel to corn futures prices in the last two months.

Matt Bennett, Commodity analyst

October 23, 2020

5 Min Read
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I farm as well as work as an analyst, so many questions have been running through my head as I got into harvest this year. Would we see the corn purchases from China come to pass as I thought might happen all along? Would carry-out for corn really end up close to 3 billion bushels? And most importantly, could we rally through harvest with the trade assuming such a big crop?

When looking at corn purchases, many have been surprised the Chinese were buying any corn at all. Even USDA said when the Phase I trade deal passed they weren’t counting on any sales to China until they saw those sales posted. Once we started seeing sales getting posted regularly in August, the market took note.

However, with a current projection from USDA showing China importing just 7 million metric tons of corn this marketing year, how does this stack up to what has shipped just from the U.S. -- and what should we expect in future? So far, the United States has shipped approximately 1.75 million tons to China but sold over 10.5 million tons. With 8.8 mt of unshipped corn, the USDA seems to remain skeptical on China taking all of this corn. However, some in the industry are projecting 20-25 mt of U.S. corn heading to China this marketing year.

Given China has reportedly been using 20-30 mt more corn than they’ve been producing the last few years, I can’t say I’m surprised. The big question is how many tons/bushels do they actually pay for? Exciting times, nonetheless.

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How far we’ve come

With some in the industry floating a 4-billion-bushel carry for this marketing year this past winter, to say we’ve come a long way in this discussion would be an understatement.

My team at felt all along the USDA was long on 2019 production and short on demand. Given the USDA calling for a 2.75 billion bushel carry in the August report, some in the trade felt they were way too low. However, September’s estimate dropped to 2.5, while October’s was lowered to 2.16 or 600 million bushels less than just two months prior.

How did this happen? A big culprit was the quarterly stocks report on September 30th which confirmed what many of us suspected --disappearance of grain much greater than the USDA had been reporting all along.

Another place to point is certainly production, where 3.3 bushels/acre have been trimmed while harvested acreage has dropped about a million acres. So, what will we see in November? I’d be shocked, given supply is unlikely to grow and demand has surged, if we see the USDA print anything north of 2 billion bu.

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But, a rally at harvest?

So, my last question I pondered from the combine cab was whether we could rally through harvest. We all know the answer to that question now.

Look back to the beginning of August. At around Aug. 4th we settled the day with Dec corn at $3.20 ¼ and the processor who gets much of our grain here in central Illinois bidding 15 under for fall-delivered corn. Yeah, $3.05 for those who aren’t mathematically inclined.

Fast-forward to October 23rd, the day I’m writing this. Dec corn is trading at $4.18, almost a cool dollar for a rally. Man, there’s no way basis could improve when corn has rallied a dollar, is there? Well, the same processor I talked about bidding 15 under for fall-delivery is now bidding a nickel over the Dec. So now the cash bid is $4.23!

This is the type of rally on futures and basis that occurs when we have a crop failure, not the kind we see with 178 bu./acre national yield.

My, my how things have changed.

So what is the take home?

What does a producer do with this good fortune we’ve seen? For one, we shouldn’t take anything for granted. Given a volatile election is just around the corner, some risk-management should be in order. While many of you likely have your bins filled and are happy being patient, we must remember how bad the industry wants the corn right now. My gut tells me the wisest thing we could do is quantify our worst-case scenario and stay in the game if we’re still bullish. This would require either selling corn and re-owning or placing a floor under our bushels.

Either way, I can’t imagine ‘letting it all ride’ after the blessing of this recent rally. Good luck to you as you finish harvest…and please, don’t take anything for granted.


Reach Matt Bennett at 815-665-0462 or [email protected]

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About the Author(s)

Matt Bennett

Commodity analyst, AgMarket.Net

Matt is a Windsor, Ill., farmer and former grain elevator owner. He is Channel Seed’s grain marketing consultant and holds a Series 3 brokerage license doing business through AgMarket.Net, Farm Division of JSA. He specializes in formulating risk-management strategies for corn, soybean farmers and livestock producers. A graduate of University of Illinois, Matt and his wife Tiffany live on the family’s centennial farm where they raise their five children.

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