Current Sales Position:
We are 80% sold on 2017/18 old crop corn.
We are 40% sold on 2018/19 new crop corn.
Corn prices had a fairly good week in Chicago. Front-month and next-month contracts added a few percentage gains as markets kept a close eye on European weather and U.S. export figures. Before we dive into the supply and demand factors impacting prices, let’s take a look at the weekly performance of futures contracts in Chicago.
- Sep ‘18: +1.9% or 6.8¢ to $3.62 USD / bushel
- Dec ‘18: +2% or 7.2¢ to $3.762 USD / bushel
- Mar ‘19: +1.7% or 6.6¢ to $3.866 USD / bushel
- May ‘19: +1.6% or 6.2¢ to $3.924 USD / bushel
Managed Money Makes a Move
This week, managed money slightly increased their net short position on U.S. corn futures. Funds added another 874 lots to their net short position, which now sits at 130,197 contracts.
The Case for U.S. Exports Looks Stronger
Let’s start this week with the export numbers.
Corn exports sales fell this week, but actual corn shipments remained strong.
This week, net sales of old crop corn came in at 338,500 MT. That figure represented a 47% decline week-over-week. The USDA said that new crop sales came in at 747,500 MT.
Total exports came in at 1.281 MMT, a 1% drop compared to last week.
The top five destinations for U.S. corn exports were Mexico (338,600 MT), Japan (283,400 MT), South Korea (198,500 MT), Colombia (95,700 MT), and Peru (77,800 MT).
Total 2017/18 U.S. corn exports to date are now sitting at 51.7 MMT, down 4% from where 2016/17 exports were at this time a year ago.
However, right now, U.S. corn exporters have the wind to their backs – at least through the balance of the summer. Ongoing domestic and weather problems continue to rattle supply chains in Argentina, Brazil, and Ukraine.
Brazil’s supply chains are frozen over trucking costs.
Argentina is facing higher basis costs.
And Ukraine has been hammered by dry weather conditions that have reduced the nation’s corn export numbers. The nation’s 2017/18 corn exports hit 1.5 MMT in June. That figure was a 17% drop from May and a 20% decline from last year, according to UkrAgroConsult..
The thing that we have to stress though, is that reality could set in fast if the ongoing trade battle accelerates between the United States and China. We could see U.S. farmers switch up to five million soybean acres in 2019/2020 if the trade spat continues.
With that in mind, Canada has picked up its corn sales to Europe. Canadian corn has been going to the EU at its fastest rate in four years. EU regulatory tariffs have largely priced U.S. corn out of the market there. Granted, this might change with some of the conversations this week between the EU and the White House, but right now U.S. corn is not finding a home across the pond.
Meanwhile, the Canadian Grain Commission said last week that corn exports to western Europe increased by 85% year-over-year during the first nine months of the marketing year. Canada is expected to ship 1.2 MMT tonnes of corn for the 2017/18 crop year. That is the largest figure since 2013/14. This is a big deal for a country that represented just 1% of global corn exports last year.
This comes as Europe will continue to bake over the next 14 days as temperatures remain high.
That being said, this week we saw wheat premiums in the EU were putting distance between itself and corn prices. Thus, it is expected that cattle feed demand in the world’s largest economic bloc will pick up for corn.
Corn Crop Progress Update
According to the USDA, 72% of the American corn crop is rated good-to-excellent (G/E). This figure is the same as last week’s report.
Going into tomorrow’s Crop Progress report, the five-year average for corn quality rated G/E for tomorrow’s report is 69%.
Keeping an Eye on the Weather
Over the next two weeks, precipitation is expected to pick up in southern Illinois and Indiana. However, northern Iowa, Minnesota, and the Dakotas are expected to see drier conditions.
Similar to what we noted last week, cooler temperatures will continue to spread across Iowa, Illinois, and the bulk of the Midwest later this week.
Where Corn Prices Go from Here
This week, we received a very good question about the state of U.S. corn prices.
“Are corn prices undervalued right now?”
The simple answer… is yes. Unfortunately, this isn’t a rational market. The ongoing trade spat between the United States and China is artificially weighing on prices.
Digging into the numbers, the reality is that panic and fear have driven the market over the last two months. Now, we’re hoping that the next two months ahead will offer a rebalancing act to a market that is ignoring the fundamentals. The July WASDE put new crop corn stocks at 1.55 billion bushels. Long before we start talking about dry conditions and weather events, that is a low figure for this part of the summer. Global stocks have been falling for years now, but the trade war is preventing prices from hitting those robust $4 or higher that we’d like to see.
The question now is where yields come in during the USDA’s August Supply & Demand report on Friday, August 10th.
Any increase in expected production – and there is no shortage of people predicting another record yield – would effectively offset the positive sentiment offered by an expectation in more exports.
Have a great week!
– Brennan, Garrett, and Adrian
July 22– Corn Weekly GrainCents Digest
July 15– Corn Weekly GrainCents Digest
July 12– July WASDE Shows Boost in U.S. Corn Production
July 8– Corn Prices Outlook for the Second Half of 2018
July 1– Corn Weekly GrainCents Digest
June 29– US Corn Acres Down 2%, Stocks Up 2% from 2017
June 29– StatsCan Reports 3.63 Million Acres of Corn in 2018/19