Can Corn Make A Comeback After A 90 Cent Drop?
Market Commentary for 5/14/21
Over the last 5 trading sessions corn dropped 90 cents, while beans were nearly unchanged. The report on Wednesday was neutral for old crop corn and probably a little bearish for new crop. For beans, it had a bullish tone for both old and new crop. There were many speculators going long corn into the Wednesday USDA report hoping for a bullish surprise in the market. This may have led to long position liquidations on Thursday and Friday.
Looking Forward
Wednesday’s report was the first look at the 2021 crop demand with supply estimates still based on the March 31st planting intentions. Now the upcoming production size will be debated until the June 30th report when the actual corn and bean planted acre estimates are published. Then July and August weather will determine final yields. Once supply is better known, the demand structure will adjust to accommodate what is grown.
Report Highlights – Ending Stocks / Carryout
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Corn
An increase to exports were the only change on the old crop portion of the report. This isn’t the tightest year on record, but it could get close if demand isn’t rationed further. Current new crop corn carryout estimates are the tightest for a May report in the last 7 years. However, the USDA is assuming that export demand next year will be more than 10% lower than this year.
Last week’s pull back could be from many in the trade wondering how many more acres will be added in the June report. IF 2.5 million more corn acres are added AND yield projections stay consistent, carryout could grow another 450 million bushels and make $6.25 new crop corn unlikely. While the planting pace is ahead of schedule, crop emergence is just normal.
Beans
Bean carryout has been extremely tight since early winter, and based on Wednesday’s report, next year may not improve all that much. It’s clear more bean acres are needed by the June report. Plus, any yield reduction due to dry weather could send bean values even higher. However, bean planting pace is ahead of schedule right now and early planted beans tend to have bigger yields.
Report Highlights – US Competition
Corn
The USDA decreased Brazil’s corn production nearly 300 million bushels from last month. Some in the trade are concerned Brazil’s current drought, the worst in 40 years, could reduce production another 500 million bushels. That may mean the US would need to fill the void with an extra 2.5 million corn acres and normal yields to offset Brazil’s losses. However, some market participants thought more of Argentina’s corn crop would be lost due to drought than ultimately happened. Either way, Brazil’s weather can still greatly affect US values going forward.
Beans
The USDA lowered new crop bean export demand estimates by 10% compared to this year. Brazil grew a very large crop this year and could produce an even larger crop next year. However, this will require at a minimum average weather in the Southern Hemisphere next January to prevent higher prices and further bean demand rationing.
Bottom Line
This is a major report of the year because it provides baselines for the market to use during the upcoming marketing year. Unfortunately for the USDA and market participants, it’s like trying to hit a moving target behind a hill. There are so many unpredictable factors, like weather impacting yields globally, disease, or political issues, that lead to both supply and demand changes which ultimately affect carryout and the prices for our product.
Moving forward Chinese exports are still very critical to the direction of these markets. Weather will now start impacting markets for the next 3 months in the US. Brazil’s second crop is hitting their critical growing phase right now and the weather is certainly on the dry side. This means volatility will be in the markets for quite some time. There is still a chance for higher prices down the road.
Want to read more by Jon Scheve? Check out recent articles:
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Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com
