Level Corn: Purdue economists encourage contracting corn in spring to secure prices

“We got some surprises from USDA on March 29,” said Jim Mintert, an agricultural economist from the Purdue University Center for Commercial Agriculture. “They released both a Grain Stocks report, as well as the Planting Intentions report, and it was a bit of a surprise in a number of respects.” 

In the reports, corn stocks were above expectations by 270 million bushels, at 8.605 billion bushels. 

Additionally, farmers intend to plant more corn acres than expected, with an increase of 1.46 million acres. 

“This shock causes us to shift our outlook a little bit – but maybe not as much as the futures reaction showed on March 29,” Mintert said.

Mintert and his colleague economist Michael Langemeier looking into the factors impacting the corn market during an April 1 outlook webinar, noting corn prices are likely to remain around $3.50 for the next several years. 

Explaining corn stocks

While corn stocks were above expectations, Mintert said, “Maybe there were some clues that we should have been paying closer attention to that might have given us some indication.”
When analyzing weekly ethanol production, for example, negative margins in the ethanol sector has pushed production down, which likely inflated corn stocks above pre-report expectations.

“As we look at the export side, exports have been lagging, as well, with corn export commitments down about eight percent,” Mintert explained. “USDA only has exports down three percent. We could see our number come down after the April 9 release of the (World Supply and Demand Estimates Report).” 

Additionally, the possibility the USDA underestimated yields last fall would also result in higher-than-expected corn stocks.

“I think it’s a likely scenario that yields were higher than actually numbers, which increased stocks,” Langemeier said. 

At the same time, Mintert said, “USDA also doesn’t have a direct measure of feed usage, either. But the main drivers probably fall down to what was happening with exports, ethanol production and yield estimates.” 

Acreage

“The acreage data was pretty interesting, with corn acreage up about four percent from a year ago,” Mintert commented. “But, the state breakouts are kind of interesting.” 

Langemeier summarized that expected corn acreage is up about 3.6 million acres, and 45 percent of that increase comes from North and South Dakota. 

“There is an anticipation of very large increases in corn acreage in North Dakota and South Dakota,” he said. “Most other states are up, as well, but the Dakotas were through the roof.” 

In particular, North Dakota intent to plant 29 percent more corn acres in 2019 as compared to 2018. 

However, Mintert said the combination of wet weather and flooding, as well as cold weather, will dictate whether or not planting intentions will be realized. 

Looking forward

As Mintert looks towards the future, he noted that the 2019-20 corn stock information, using USDA yield estimates, are also interesting for several reason.

“First, projected corn production is right around 15 billion bushels,” he explained. “Usage is about the same. It is also interesting we can see usage this high.” 

Ending stocks for 2019-20 are still projected to hit about 2 billion bushels. 

“Coming in, I think there was an expectation we could pull down ending stocks a bit in 2019, and the March 29 report suggests larger carry-in from 2018, and the larger corn acreage is going to make it tough to pull down ending stocks without some weather problems,” Mintert summarized. 

Langemeier added, “Residual corn is supposed to be high, and exports are supposed to be similar to 2017-18. Any change in those two numbers will result in ending stocks higher than what we are showing here.”

Ending stocks at around 2 billion bushels will likely mean U.S. farm average price will continue to hover around $3.50.

“Coming in, I think we thought there might be more upside to corn than we see in this balance sheet,” Langemeier explained.

Futures

March 29 reactions to both reports was very negative, and Mintert said, “Our view is that was probably an over-reaction, but we’ll see how that plays out.” 

Corn futures have maintained a consistency low of about $3.60, which suggests a solid floor, but Mintert said breaking out beyond a high of $3.80 or $3.85 is projected. A spring rally in prices is likely, however, particularly in light of weather challenges. 

“Our advice would be to hold off on old crop sales for the moment and see if that spring planting rally does, in fact, materialize,” Mintert added.

Mintert also cautioned against holding onto old crop corn for too long, saying it’s risky to hold old corn past June 1. 

“The new crop picture looks better,” he continued. “We still saw a strong reaction to the acreage report.”

A spring planting rally could bring prices for December 2019 future up to $3.95 or four dollars. 

“In the short run, we’d be inclined to hold on and see how things shake out in the next few days,” Mintert said.

Langemeier added, “I do think it’s important to point out that a cash price above four dollars has a relatively small chance of happening next fall.”

Mintert encouraged producers to evaluate storage opportunities, which may bring carry and basis appreciation while moving through the storage season.

“While rallies don’t happen every spring, given some of the weather problems in the Midwest this year, 2019 might be a year for a decent spring planting rally,” Mintert emphasized.

The impact of flooding across the Midwest is yet to be seen in markets, said Mintert.

Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at roundup@wylr.net.