Stocks, Silage, And Sorghum Could Be Signaling Corn Has Upside Potential
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Market Commentary for 1/20/23
It has been over a week since the latest USDA report.
The biggest surprise was harvested acres being down significantly due to dry weather in Nebraska and Kansas. With those acres removed from production, the national yield average rebounded slightly. Still, overall production is lower than previously estimated.
The USDA also decreased corn export demand to an attainable level as the US prime corn export season begins. Currently it is uncertain if world buyers will fill their storage facilities or wait to see how big the next crop in Brazil will be in May.
There were some additional surprises in the January report that will take time for the market to digest.
Sorghum
While many market participants have discussed the drop in harvested corn acres and the slight increase in yield, they have overlooked sorghum. Sorghum had a 58% production decrease from last year, which means 200 million fewer bushels of a crop that competes directly with corn in the southern plains feed channel. Moving into spring and summer, there will need to be a lot more new crop wheat available to help fill this void, or it will put a bigger squeeze on an already tight corn supply in that area. Therefore, the spring weather in the southern plains will be watched closely, because it will have a big effect on hard red winter wheat production and corn basis in that area.
Hay
US Hay production being down 6.2% also caught my attention. To compare, year over year corn production was down 8.9% and soybeans were down 4.3%. Right now, hay stocks are the lowest since 2011. Nebraska, Oklahoma, and Texas are down nearly 33% from last year while Kansas is down 18%. This means spring weather will need to have normal to above average precipitation in the southern plains to ensure adequate fiber is available for feed needs in 2nd quarter 2023.
A tight fiber market could increase the value of other feed ingredients, many of which are also competitors for corn in feed rations.
Limited Grain Being Stored in Bins
The massive corn stocks decrease in Nebraska and Kansas will take time for the trade to fully understand. Currently, the USDA is reporting 30% less on farm and commercial stored corn in Nebraska compared to last year and Kansas is down 25% year over year. In the northern corn belt, North and South Dakota have 5%-13% less corn on hand than they did last year, when they were under extreme drought conditions. Even Iowa is down almost 2% from last year with most of those lost stocks being in the western third of the state. Across the entire US, overall corn stocks are 7% lower than the average of the last 8 years, and it is the lowest stocks on hand for this time of year since 2014.
This could mean western corn belt end users, without coverage past March, may have issues sourcing corn to feed their animals or run the ethanol plants. This could suggest a rally in the basis later this summer. Plus, rail logistics get expensive trying to move grain from the east where there is plenty of supply to the west where stocks are limited.
Bottomline
There has been a lot of bearish news in the market recently it seems. However, limited stored corn west of the Missouri River Valley could offset a lot of negative export and ethanol news. Plus, spring weather could still have a big impact on hard red wheat production which could in turn sway both futures and basis prices on corn later this year.
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Jon Scheve
Superior Feed Ingredients, LLC
