The government shutdown that created a big data vacuum threw longstanding seasonal patterns out of whack. Whether those trends get back on track will go a long ways toward proving whether corn is profitable, both for 2018 inventory and 2019 production.
The data, when it finally came out Feb. 8 wasn’t bearish. But it wasn’t terribly bullish, either. USDA cut production 206 million bushels, right in line with what our survey showed. Projected leftover supplies fell just 46 million bushels because demand was even weaker than we expected due to lower usage for livestock feeding and ethanol production.
The new numbers don’t create any urgency on the part of end users, who are enjoying weaker than average basis in the cash market to boot. Still, the ratio of stocks to usage for the 2018 marketing year is projected at just under 12%. That’s positive because it’s in a range that’s history brought rallies into spring as the market recognizes the need to plant enough acres to provide an adequate cushion against sub-par production.
After six years in a row of above average yields, corn may or may not be due. But the slow fall fieldwork and fertilizer application season and what looks like a wet end to winter in the eastern half of the Corn Belt could help the market attract some attention.
Farmers may need some incentive to risk planting corn, and futures aren’t providing it yet. With December trading around $4, the average income statement shows a loss of around 35 cents a bushel. That’s one reason our recent survey showed farmers wanting to boost acreage just to only 90.3 million, a level that would tighten carryout to 1.5 billion bushels or less assuming average yields and decent demand. The resulting average cash price for the crop of $3.95 still would be below break-even, but would suggest very good potential for rallies at some point during the growing season to levels that could be successfully hedged. The selling range on my current supply and demand table is $4.37 to $4.53. Getting that prices that high before June or July would be hard. But add in carry to July 2020 and it could perhaps get done.
My acreage estimate is more bullish than many, who are still penciling in the 92 million acres USDA included in its November baseline forecast. But futures favored corn over soybeans back then, when the trade war between the U.S. and China had shut off soybean sales to China. Soybeans look a little better now, especially with a cost per acre that’s 35% less than corn on average, a plus for cash-strapped growers. USDA updates its statistical guess at the annual outlook conference in Washington Feb. 21-22, assuming the government is still open for business.
Corn isn’t without risk. If prices and perhaps yields fall, losses can top soybeans by $40 an acre, maybe more. But corn looks to have a better shot at a profit, or at least looks to lose less than soybeans if prices aren’t terrible and yields hold up.
That said, farmers are still holding a lot of old crop corn – our survey indicated more than 60%. March-July carry at 15 cents is an incentive to keep storing, but hedges need to be put on at a regular basis, say 5% a week, for those looking to capture an average price.
While 2019 average corn prices aren’t yet showing a profit, they’re getting closer to it on our latest supply and demand table, which gives futures a shot at running to levels where profitable hedges could be made.
Brazil’s ag ministry lowered its forecast of corn production Feb. 12 due to dry conditions that developed in December and lingered into January.
The ratio of ending stocks to usage could keep tightening during the 2019 crop marketing year if farmers limit expansion and produce average yields.
In years with similar ratios of ending stocks to usage, July futures on averrage rallied into March/April after a September-January lull. The government shutdown have have delayed the trend this year.
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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on corn farming, basis, energy, fertilizer and financial markets feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
For more corn news, corn crop scouting information and corn diseases to watch for, follow Tom Bechman's column, Corn Illustrated Weekly, published every Tuesday.