Head to Head: Corn Outlook for Spring

April 1, 2014 09:10 PM

Q:  Since USDA dropped its 2013/14 corn crop carryover estimate below 1.5 billion bushels, what does this do to your outlook for both old and new crop corn values as we move into spring?

It’s All About the Weather

Geopolitical risk associated with Russia and the Ukraine has provided a nice bounce off the January lows, but I’m afraid from here on out it’s going to be about Mother Nature. If you’re looking for a quick reference guide, consider these:
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Planting pace debate. The key number is how much we have in the ground by mid-May. Less than 80% and the trade will start to get nervous and prices will rally. More than 80% and prices break as the trade feels comfortable with crop health. 

June precipitation. Obviously, any lack of preci­pitation in key states (Iowa, Illinois, Indiana, Missouri, Minnesota, Nebraska, Ohio and South Dakota) will make the trade nervous and prices will work higher on lower corn yields. Better-than-average preci­pi­ta­tion and yield estimates work higher.     

July temps. If we see very high temps on top of limited rainfall in June, prices could push higher as yield estimates fall. 

Remember, a simple 5% to 8% reduction in new-crop "yield" can result in a 30% to 40% rally in price. Rather than digesting new-crop corn at $3.90, it could be much easier to swallow at prices north of $5.10.
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Establish a Floor Before Planting Starts

USDA dropped corn carry-out below 1.5 billion bushels, which seems to be enough to stop the bleeding. Corn was just coming off the largest annual percentage decline and was likely oversold. This doesn’t mean we have safely made it to a bottom. USDA has some rather lofty demand estimates in place to get carry-out below 1.5 billion bushels. We believe those estimates are still possible, but not at current price levels.

The current USDA demand estimate tops the previous record from 2009 by 234 million bushels, and during that year, corn futures averaged about $3.75 a bushel. The Cattle on Feed reports have been consistently below 2013, yet the feed and residual estimate is almost 1 billion bushels higher! That demand will be hard to achieve in our opinion, but we might make up for that with exports, which have been very strong year-to-date. Corn prices might also be strong until planting begins, but by then, we recommend producers get a solid floor for both crop years. Look out for prices to decline when all of the corn in on-farm storage hits the market this spring/summer. Sub $4 is a real possibility for both old and new crop.



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