It didn’t take long for USDA’s July 11 production, supply and demand report for 2019 crop corn to be fed to the shredder. No one took the numbers seriously, likely not even the economists that put them together.
The government had no choice but to raise its forecast of production to an unlikely 13.74 billion bushels. Acreage estimates from June 28 had to be used in the calculations, for starters. And after cutting its yield estimate 10 bushels per acre in June due to late planting, the agency had no statistical justification for making another reduction.
But before dismissing the report entirely, don’t ignore what the government said about old crop. Sept. 1 inventories rose 145 million bushels, even more than I expected, and I had the most bearish forecast in the industry. Exports and usage for feed and industrial purposes all fell as demand rationing takes hold due to higher prices.
Despite the market’s quick rebound and reversal higher, that’s a warning not to get too locked in to waving rally flags. Yes, my supply and demand table this week includes a $5.05 target as the upside of the price range. But getting there, if it happens, may take time, and probably some heartburn too.
Acreage, of course is one unknown. USDA provides some clarification on Aug. 12 with its resurvey of growers who were still planting corn back in June. Prevent plant data should also come out that day.
I’ll be starting Farm Futures survey soon, reporting results Aug. 5. In the meantime our anecdotal queries on Feedback From The Field include a whole lot of prevent plant acres.
Yield estimates are even more uncertain at this point. While USDA’s national Crop Progress rating improved significantly last week, our state-by-state analysis showed a little slippage that was confirmed in the latest Vegetation Health Index maps. While the ratings translate into yields of 168.4 to 170.6 bpa, the VHI projects a range of 155.6 to 169.6, with a midpoint of 162.6.
Adding to uncertainty is the latest official ENSO forecast, which says the El Nino is over with neutral conditions prevailing. That makes it even harder to predict where final yields could turn out, though warmer and somewhat drier weather to end July could be trimming the top end off whatever yield potential is out there.
Due to the late development of the crop, the Aug. 12 estimate won’t be the final word. It could produce a blow-off top if the production number is small enough – below 13 billion bushels. Otherwise it may take months for the final numbers to be firmed up from a crop that likely will face some frost issues at some point too.
Still, with crop insurance, ARC benefits and a Market Facilitation Program payment tossed in, corn likely will be profitable for all but high cost producers with December corn above $4.50. Crunch numbers for your operation to see if more sales are warranted, assuming you’ve emptied bins of old crop. With basis very strong in some areas, its time to sweep them clean.
Also begin thinking about short-term put protection for the August report. August puts expire Aug 23, enough time to get through the report and its aftermath.
Old crop corn supplies are increasing as demand rationing takes hold, which provides a cushion against lower production and a late harvest this fall.
Export shipments are falling well below average as customers look to Brazil for their corn needs.
The latest VHI confirmed deterioration in the heart of the Corn Belt noted in the July 8 Crop Progress report, suggesting below average yields are likely.
A move above June highs would keep the seasonal corn chart following the pattern seen in bull market years.
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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.