The weather this week had a fall-like feel to it, which was a big change from last week’s triple digit heat. But even with the break from the heat, the rains have been absent, and the crop production outlook is taking a turn lower. But analysts say even with average yields, corn prices might not have much of a story to move higher.
Last week on the Pro Farmer Crop Tour, scouts saw a crop accelerating toward maturity, and at times, scouts wondered if the crop was drying down or dying down.
“Our clients are pretty much saying the same, it is dying down,” says Jim McCormick of AgMarket.net. “It’s pretty amazing how hard of a U-turn this crop has made in the last 10 to 15 days.”
McCormick thinks the sudden switch in crop conditions could have a detrimental effect on the potential production picture.
“If you look at the crop, and the corn that’s in the milk stage, they’re talking losses anywhere between 5% and 15% off of the yield, just in that stage,” McCormick says. “And then beans, we’re hearing pods are being aborted. So, essentially two to three beans in a pod instead of three to four. In our viewpoint, this crop is getting smaller. We’ve got more heat coming at us again. Labor Day week is going to feel like Fourth of July weekend, and it’s just not the way we want to see this crop end.”
Even if weather takes a bite out of the national corn yield, Mike North of ever.ag says it’s hard to make a case for much higher corn prices.
“Until we take the national corn yield below 168 [bu. per acre], that balance sheet is going to still be pretty fluffy. And so, as you look at the path forward, we could give away another 5 bu. [per acre] and still feel really comfortable with ending stocks numbers and still make a case for corn to not move forward very far from $5,” North says.
For soybeans, the balance sheets are already much tighter, which means a slight dip in production could significantly change price projections for soybeans.
“I do think beans have a better opportunity,” McCormick says. “Like Mike said, the current corn balance sheet really does have a lot of room for a reduction in yields. The beans do not. If the bean yield would fall down to the 47 [bu. per acre] or 48 [bu. per acre] level, like some people are suggesting it could happen due to this late heat, we believe it would move soybean prices higher to ration out demand, which can be a little bit tough with a growing biodiesel demand.”
One concern that’s growing this harvest season is low river levels on the Mississippi River and the impact it could have on barge traffic this fall.
“What’s going to happen is they’re going to essentially drive up the price of shipping, your barge freight rates are going to go up, they’re not going to be able to load as much out. So that will make us less cost effective trying to get it down to the Gulf,” McCormick says. “And on top of that, we have that drought going on in the Panama Cana, and the Canal is also raising rates. It’ll cost an extra $2 a ton to get the grain through the Panama Canal.”
McCormick says U.S. commodity prices are finally getting more price competitive with Brazil, but now barge and shipping issues could continue to make the U.S. too expensive, which is another hurdle for demand.
“Building off of Jim’s comments, the first thing you have to be watching for is basis, because the buyers’ response to all the things he pointed out is to widen basis lower to make it less advantageous,” North says. “And so if I’m a seller, and I’ve already got hedge to arrives (HTAs) in place, because I made sales earlier, I’m not going to be waiting around to see if basis can get any better, likely, it’s going to get worse.”
North says there could still be strong carry in the market, something growers should pay attention to.
“So, as I look at this, the other thing to do is defer the decision and not deliver this fall, but to use storage to take advantage of a stronger carry and avoid the forthcoming basis hurdle that we’re going to have to overcome because of all these logistical elements at play.”
