Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com
Market Commentary for 4/23/21
Corn Outlook
Last week May corn prices blew past $6, and then a few days later $6.50. Additionally, May futures gained on July futures by almost 10 cents, which is huge. Normally, a 1 cent move on that spread in one week is a big deal. Basis values across the US also increased another 5 cents. These are clear indications that the market is begging for corn and is unable to find it.
How Much Corn Is Left to Sell by Farmers?
The last USDA WASDE report showed on-farm cash corn prices unchanged at $4.30 from the March report, suggesting most farmers already priced the majority of their 2020 crop at lower values compared to today’s prices. Plus, elevator mangers across the Midwest are telling me that a lot of corn was sold around $4 futures and then most farmers sold another big portion of their production again in November when prices hit $4.50. When corn shockingly hit $5.50 last month, a few farmers sold again, most likely cleaning out their bins before planting. Therefore, the consensus is that very little corn remains in on-farm storage.
What About Commercial Elevator Storage?
Commercial elevators have been selling corn as fast as they can buy it. This is because commercial elevators hedge the grain they buy right away to reduce futures risk on the trade. The current inverse market encourages commercial elevators to move corn now, because any stored bushels could be worth less in the future. When the nearby contract is worth more than the contract after it, a hedger loses money to roll their hedges forward. Therefore, it’s unlikely much is left in their storage either.
What Will End Users Who Need Corn Do?
It will be a challenge for those who still need to buy in the cash market between now and mid-September. Basis values are approaching levels not seen since the drought years. With tight carryout estimates, both basis and futures have a lot of upside potential. It’s a sellers-market and buyers could feel a pinch.
Bean Outlook
New crop beans lost ground to new crop corn this week, which doesn’t make much sense. Old crop bean carryout is the tightest in history, and new crop carryout is expected to be just as tight. Plus, the new crop corn-to-bean ratio (i.e. Nov beans at $13.50 divided by Dec corn at $5.57) has gone down from 2.6:1 to 2.42:1 in one month. The closer to 2.4, the higher probability more corn acres will be planted this spring.
In other words, beans were already desperate for more acres and with the current corn-to-bean ratio it seems like beans will not be buying enough acres from corn.
US Weather
There has been growing concern over persistent cold weather throughout the Midwest and excessive dryness in the north and southwest. Some have suggested these events could impact upcoming yields. There is some recent historical data that my friend and market contact Matt Campbell observed suggesting this belief is misguided.
Comparing 2021’s Average April Temperatures to Similar Years
The following charts show that the average April temperatures in 2013 were much colder than they are today while 2018 was only slightly colder.
Source: Midwestern Regional Climate Center
In the end, 2013 corn yields were only slightly below trend line and 2018 yields were slightly above trendlines. This suggests that April temperatures probably don’t impact yields much.
Comparing 2021’s Drought Monitor to Similar Years
The following charts show the US Drought Monitor Index in 2021, 2018, and 2013.
Source: University of Nebraska Drought Monitor
After 3 years of persistent dry weather in 2013, many believed there would be a fourth year of dry weather. However, that didn’t happen. 2018 started off as one of the driest years since 2013 but still had above normal yields.
Winter Drought Monitor Index – 20 Year Comparison
Over the last 20 years, there does not appear to be any correlation between Midwest drought conditions during the previous winter and final upcoming national average yields.
Source: Matt Campbell
For instance, the increased dryness in 2006, 2007 and 2008 had virtually no effect on final national yields. Also, 2013 started off as one of the driest years, yet yields were near trendline. Conversely, 2011 started off relatively normal, but lack of summer rain caused big yield reductions.
Looking Forward
This analysis seems to indicate that winter and early spring weather have limited impact on final yields. However, timely rains from June through August are CRITICAL to crop production. Unfortunately, predicting weather conditions, especially precipitation, long-term isn’t available yet and that will continue to create uncertainty in the market. That’s why risk management is extremely important for farmers to remain successful year after year.
Want to read more by Jon Scheve? Check out recent articles:
Can Corn Get Back To $6 And Will Beans Make It To $15?
Which USDA Reports Should Farmers Give Their Attention To?
Brazil Will Export As Much Corn As The United States With Only Half The Yield Size
Corn Prices Could Range Between $4-$8 While Beans Could Be $10-$16
How Do Trade Cancellations Work And How Do They Affect Farmers?
China May Import 40% More Corn Than In The Last 60 Years Combined
What Price Will Farmers Sell Their Remaining Unpriced Corn?
$6 Corn? $15 Beans? Hang On Tight Its Going To Be A Bumpy Ride
Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com
This email material is for the sole use of the intended recipient, and cannot be reproduced, disseminated, distributed or electronically transmitted, including any attachments, without the prior written permission of Superior Feed Ingredients, LLC.. Even though the information contained herein is believed to be reliable, we cannot guarantee its accuracy or completeness, and the views and opinions expressed are subject to change without notice. Trading commodities involves risk and one should fully understand those risks before buying or selling futures or options. This data is provided for information purposes only and is not intended to be used for specific trading.
