As weather and managed money decisions turn the market into a roller coaster, uncertainty appears to be the order of the day. But if you're ready to go from being reactive to proactive, here are six takeways from Allendale's latest corn market outlook.
- Don’t hold your breath for a drought. As of mid-July, top five corn-producing states are currently seeing 2 to 3 inches more of moisture than normal and more rain is in the forecast. “This is a very big deal,” says Rich Nelson, chief strategist at the McHenry, Ill., marketing firm, who believes this weather pattern suggests above trendline yields this fall.
- Prepare yourself for a bumper corn crop. Like other analysts, Allendale’s Nelson currently expects a bigger harvest this year compared to 2015; he currently estimates an average national yield of 168.4 bushels per acre, even given the heat hitting the Midwest right now.
- Be grateful for the unfavorable weather that affected South America this year. “What saved us was problems with Brazil,” says Nelson. “I’ll be very clear. With our massive overage of supply, if we didn’t have this Brazilian corn problem, we would not be complaining about $3.50 and $3.60 corn. You’d be complaining about $3.20 to $3.30 corn, with the potential to go below $3 for a fall low.”
- Try not to be unnerved by the big ending stocks numbers. While estimated corn ending stocks of 2.1 billion bushels sounds frighteningly bearish, Nelson says there’s more to ending stocks that just the number. “If you want to throw scary facts at people, this is the largest corn ending stocks since 1987, back when we had 4 billion bushels,” he says, adding: “You can make an incredibly bearish argument. But ending stocks do not determine price … because of usage.” While the stocks to usage ratio of 15.1% is larger than recent years, it hardly compares to ’87, when the ratio was more than 50%.
- Keep an eye on Argentina. This South American country has had “astounding crops” in recent years and could add to corn supply, according to Nelson. While this year’s crop was 28 million metric tons, Allendale is estimating the country’s next crop to be 33 million metric tons. “If it hits the same peak yield seen recently, it could increase to 37 million metric tons,” said Nelson.
- Brace yourself for some painfully low corn prices this summer and fall. “I’d love to have a second chance at this market. I’d love to have a second chance at a summer rally. But if we look at the current situation as far as weather, I don’t see that anywhere in the mix,” Nelson says, adding: “We are suggesting that this market is still on the path down, and that we will eventually hit $3.19 for the summer low on December corn.” Will prices (gulp) stay there? Nelson doesn’t think so. He projects a “moderate rebound back to $3.50 once the harvest is complete.”