Corn futures have traded in a narrow consolidation trading range for a few months. The marketplace continues to sit and contemplate over the current market fundamentals.
Demand for corn for ethanol and feed remains strong. Corn demand for export has slipped due to a higher United States dollar. Yet it is not the demand aspect that has my attention. It is the supply.
I work with farm clients across the Midwest and the resounding story that echoes from conversations revolves around the low-test weight, lower than normal yields and stubbornly high moisture. In the most recent U.S. Department of Agriculture report, the USDA did lower harvested acres for corn, but yield was slightly increased to 168 bushels per acre. Many in the industry feel that yield could actually be closer to 165 bushels per acre.
Now, the part about the low-test weight is important because it takes more corn to feed livestock than normal. This fact will show up in USDA Quarterly Stocks reports in the future. Look for those at the end of March, end of June and end of September.
In the meantime, the cash market is screaming a decisively different story than what the futures market is trying to convey. The futures market suggests “calm, boring, consolidation” corn trade. Yet the cash market has basis levels that are soaring higher. Cash market basis levels do not soar as they are, unless grain is hard to come by. And mind you, the last time basis levels rallied like this, it was the summer of 2012 in the heart of the drought.
Friends, it’s only the middle of winter, and the cash market is reacting like its either out of corn or that it is extremely hard to come by. According to the USDA, corn carryout is close to 2 billion bushels. In years past when corn carryout is close to 2 billion bushels, basis levels are historically wide or negative. That is not the case this year.
As a producer, how do you manage this? If you have corn in the bin to sell, do continue to focus on cash sales. Seasonally, futures prices have a tendency to work higher during the month of February and then the party is over. Futures prices then have a seasonal tendency to trade lower during the months of March, April and May.
The market then focuses instead on the crop that will get planted in spring, and how the U.S. might plant 95 million acres of corn. The marketplace will also assume trendline yield until proven otherwise. The larger marketplace assumption will be that a huge crop will be planted in spring of 2020 to save the day from the 2019 crop, which still has a question mark regarding the total production. 2020 is when you will need to be ready to use all the tools in your marketing tool box from cash trade tools to futures to options. Brush up now and ask questions. There is volatility ahead.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa Public Television series “Market to Market.” She can be reached at [email protected].
