USDA didn’t have bearish news about corn in its Nov. 8 production, supply and demand report. But the data wasn’t all that positive, either.
Yes, the size of the crop fell modestly, though less than most expected. But the weak underbelly of corn’s story was clearly exposed. Demand is shrinking, keeping corn strictly a supply market. This doesn’t mean the market can’t rally. But the last, best hope for that won’t come until USDA releases its final 2019 crop production estimates Jan. 10. Unless that update shows a dramatic reduction, any gains in the new year likely will be brief.
Corn harvest is the third slowest on record, with progress in northern states especially lagging. But so far, yields appear to be holding up. USDA lowered its yield to 167 bpa in November, but the real question mark could be acreage. The agency resurveyed growers in Minnesota and North Dakota hit by the October blizzard for changes in harvested acres but made no adjustments on that score. Planted acreage could be a little bigger when all is said and done, at least according to certifications made to the Farm Service Agency. Harvested acres could be lower, as the full impact of weather is finally felt.
As a result, my best guess is for the agency to knock another 315 million bushels or so off the size of the crop. But fewer bushels to harvest likely will reduce demand, taking carryout down only 180 million bushels. Projected ending stocks of 1.73 billion bushels wouldn’t be enough to produce major rallies, though deferred 2019 crop futures might get back to $4.25, maybe a little better.
All three segments of demand face challenges. Livestock usage has the most support thanks to expanding herds. But there are plenty of other rations out there, including a lot of lower protein hard red winter wheat and damaged spring wheat, not to mention sorghum.
Exports aren’t going anywhere – I’ve penciled in a 145-million-bushel reduction from USDA’s November estimate, which itself was cut 50 million from October. Most of our demand is coming from Mexico and the Caribbean, as even some of our regular Asian customers like South Korea and Taiwan book supplies from South America and the Black Sea.
First crop corn out of Brazil is already cheaper than U.S. costs out of the Gulf for winter. And farmers in Argentina appear to be aggressively forward pricing their upcoming harvest, hoping to beat export barriers from the new Peronist government set to take power in December. Rainfall in Argentina was below average over the past month, but the crop there so far is in better shape than a year ago.
USDA also cut its forecast of usage for ethanol, something I’ve expected. Ethanol production is running around 5% behind year-ago levels and plants pushed efficiency to record levels in September before margins recovered, squeezing more gallons of fuel from each bushel of corn, further reducing demand.
Funds sold corn into the Nov. 8 report and have a large enough bearish bet on the books to generate short covering rallies. But these typically are short-lived unless the hot money has a reason to get bullish. Right now, it doesn’t and that’s likely won’t change soon.
Ability to hold well above Labor Day lows would be a step in the right direction, providing a chance for a modest rally to buy acres into late winter and early spring. While USDA’s first estimate of 2020 corn seedings was 94.5 million bushels, an increase that big looks like a stretch given December 2020 futures at unprofitable levels.
For now, focus on old crop. Despite sluggish demand the market still needs corn. With plenty of storage for the crop and little incentive for farmers to sell, buyers are bidding up basis. Carry is running just three cents a bushel per month, which also acts as an incentive to move cash inventory if you have it on a basis contract.
Smaller harvested acreage could reduce the size of the 2019 when USDA updates its production estimate, but weaker demand should offset some of that loss.
Corn useage by ethanol plants is running around 5% behind year-ago levels as demand falters for winter.
Corn sales and shipments so far two months into the marketing year are the second lowest in more than 30 years as customer book cargoes from the competition.
Ability to hold September lows is a must for corn to have a chance to rally into 2020.
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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.