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Market Commentary for 6/17/19
There are so many factors affecting the corn futures market right now, that it's easy to rationalize why the market could be headed for a rally or even a decline. Following lists several reasons to be bullish or bearish corn right now.
The Biggest Unknown - Acres Planted
Its clear many acres won't get planted this year, but no one knows how many. Estimated unplanted acres range between 5 to 15 million, and that difference could have a huge impact on futures values. The market seems to be estimating 5-7 million right now, but if more acres are designated as prevent plant, like 10 million acres, futures could rally more.
In March, the USDA estimated 4 million acres less of the major crops will be planted in 2019 versus 2018. So, it's possible after the wet fall and winter, the USDA may have already prepared for some lost acres due to a potential wet spring and flooding. They also lowered total corn and soybean acres by almost 1 million acres from last year. The USDA knows in most years some acres end up in prevent plant, so they might have already planned ahead some in the March report.
The Biggest Wild Card - Yield Potential
The threat of prolonged cool weather and limited growing degree units excites some in the trade. A late July heat wave or an early frost could affect yields and increases prices further.
The June USDA report reduced the expected yield by 10/bu/acre, which surprised some because the USDA has never lowered the June yield. While this is an appropriate response to the late planting conditions, the summer weather is still uncertain. Widespread favorable weather conditions could mean yields won't drop further.
Accuracy and Relevancy of Crop Conditions
The first crop condition report provided a sobering look at the poor conditions of crops at this stage of the growing year.
Last year's condition reports suggested widespread poor yields, but ultimately final yields were better than expected. The USDA uses 5 different ratings classifications for yields: excellent, good, fair, poor and very poor. Farmers tend to use 3 ratings: okay, bad or dead. This means farmers generally associate their "okay" to good and excellent ratings, "bad" to fair, and poor/very poor is "dead". This perspective difference can lead to unintended exaggerations in reality.
Global Demand Uncertainty - Exports
US corn prices aren't competitive to world buyers. A recent report indicated that after factoring in South American currency values, the current price of corn is higher now than in 2012. Also, this year's South American crop is almost a record, and 20% larger than it was last year. This means South America has the highest prices they've ever seen, a near record harvest, and limited storage capacity available. This could put significant downward pressure on US export demand. There are some already suggesting that South American corn will be imported to the US and work up the river systems into the heart of the Midwest.
A political disruption, currency value adjustments, or logistical issues could shift market dynamics back to the US.
Futures Values Uncertainty - Basis & Spreads
Last week eastern corn belt end users scrambled to buy any old crop grain available in their areas. This increased basis 30 cents, one of the largest one week moves I've ever seen. It also narrowed spreads between futures months, discouraging commercial elevators from storing the old crop grain.
The sudden basis, spread and futures increase may force end users to either not grind for ethanol or make feed for their herds. Some end users may be forced to use substitutes. We are still sitting on one of the largest corn carryout's in the past decade, and someone has to hold the crop until after harvest. Basis levels in the western corn belt are only up 10 cents last week, which may suggest grain availability and movement isn't as bad as some in the trade suspect.
Prices Have A Large Range Potential This Year
There are so many unknowns in the market, it's impossible to know where prices are going. The number of acres planted, and eventually harvested, will be one of the most important issues facing the market over the next several months. Yield potential is critical because there are so many more variables with a late planted crop. Corn's demand structure is more global than it was back in 1995, when the market last saw this type of problem. And, South America is now a key competitor for both corn and beans to US production. When you add trade disputes to the mix, it leads to more market direction uncertainty.
As one farmer friend in Ohio told me this week “this crop didn’t go in the ground easily, so how can we expect marketing it will be any easier?”
Want to read more by Jon Scheve? Check out these recent articles:
Maximizing Basis Profits By Hedging Corn
Why Storing Beans Was Profitable This Year
Is 4 Million Prevent Plant Acres And 4 Bushels Per Acre Below Trend Enough To Maintain $4
Why I Sold My Remaining 2018 Corn And How I Averaged $4 Overall
How I Lost 10 Cents Selling Straddles
Why It Was Profitable To Hold My 2017 Corn Until Now
Strong Basis Levels Open Up Opportunity Even In The Face Of Weak Futures Prices
The 3 Factors in Grain Pricing
The Surprise Is The Corn Stocks Not The Acreage Intentions
How I Could Get $4 For My Corn If Prices Are Above $3.80 On April 26
The Challenges of Still Having Unsold 2017 Corn
Frustrations Of The Current Market And Reasons To Be Optimistic
I'm Placing More Trades That Profit If The Market Stays Sideways For Another Month
Collecting 13 Cents Premium On 30% Of My 2018 Corn Production Over The Last 3 Months
Thinking Of The Farm As A Business
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Superior Feed Ingredients, LLC
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