Weather market begins
The dominant fundamentals are now planted acreage and weather, say Richard Brock
By Richard Brock, Brock AssociatesIt’s that time of year. Even though the weather forecast was warm and dry, it’s snowing in Wisconsin and Minnesota. Typical spring. Nevertheless, at this stage the market is not responding all that positively.
The dominant fundamentals are now planted acreage and weather. Until the crop gets in the ground, old-crop will continue to carry a premium to new-crop corn. Our estimate is that U.S. farmers this year will plant 91 million acres of corn. USDA’s March Planting Intentions estimated 92 million acres vs. last year’s 88.6 million. With a normal trendline yield of 177.7, we estimate that carryover will jump from 1.382 billion bushels this year to 1.683 billion next year. That is enough to trigger a major change in prices.
Basis impact
The last couple of years have seen a tremendous change in corn basis. What has always been a negative basis in the western Corn Belt has become a very positive basis, and basis in the eastern Corn Belt has softened from normal levels. The reason is quite clear. Since 2016, in the key corn producing states of Nebraska, Iowa, Illinois, Indiana, Minnesota, and South Dakota, at least one if not three of these key states had major production issues. Combined production in these states key states peaked in 2016 and has not gotten back to that level.
The livestock industry is in desperate need of a good crop in these states. When that occurs, then basis levels will get back to normal and corn will shift from being a seller’s market to a buyer’s market. The livestock industry needs it.
The graphic below which shows U.S. corn ending stocks and the ending stocks-to-use ratio shows the whole picture. With 91 million planted acres and a trendline yield of 177.7 bushels, ending stocks will jump to the highest level in four years. At the end of the 23/24 marketing year, ending stocks will still end up below the period from 2015/16 to 2019/20 period, but they will be getting much closer.
The bottom lineOver the past three years, it has paid to be an aggressive buyer. That will not likely work this year. From this point on, buy on a hand-to-mouth basis. Midwest cash corn prices by mid-July could well be starting with a “four”.
