Corn prices in the month of August 2018 took on some pressure thanks to two risks: geopolitical and bearish yields.
Last week, the USDA announced Trump’s plan to subsidize crops (and farmers) affected by heavy tariffs. Each crop and livestock farmer can receive up to a maximum of $125,000 in compensation. These payments and limits are completely separate from existing government programs like PLC and ARC.
However, to be eligible, “applicants must have an ownership interest in the commodity, be actively engaged in farming, and have an average adjusted gross income (AGI) for tax years 2014, 2015, and 2016 of less than $900,000.”
Specific to corn, the USDA is offering a subsidy of 1¢/bu on 50% of 2018 production.
A whole cent!
The subsidy program is largely allocated to soybean farmers due to the sharp decline in exports to China. However, there’s no denying that the trade battle has pulled corn prices lower and impacted the bottom line of corn producers. The government has said it will consider additional payments in the near future.
Corn prices finished the last week of August in the green as markets squeezed out positive gains. It was a week dominated by news on the trade front as the U.S. and Mexico reached a bilateral deal. Farmers are pinning their hopes that this new deal will fuel an uptick in corn buying.
Specifically, we saw the highs come in at the start of the month before the market started to price in a fairly large US crop.
The results from the ProFarmer Crop Tour were a wake up for many speculators in the corn market. The hopes that weather would eat into yields are fading.
This week, INTLFCStone cut its projections for U.S. corn yields to 177.7, a 0.4 bpa reduction from its previous forecast. It’s still not far off from the record 178.4 bpa forecasted by the USDA in the August WASDE..
But it’s also above the 177.3 bpa projected by the ProFarmer crop tour.
INTL FCStone says that the total U.S. crop will come in at 14.532 billion bushels, a figure that is just 54 million bushels lower than the August USDA estimate.
That being said, front-month corn prices ended August 2018 about 4% lower than in July. Corn prices were also slightly below the 5-year average for the end of August.
For our GrainCents readers, we’re watching a variety of factors that might affect corn prices: 3 are bearish, 2 are bullish, and 6 are what we categorize as noise.
(If you’re not familiar with what “noise” is, then we recommend you check out our GrainCents risk management process towards corn prices.)
This month, GrainCents investigated topics such as:
• Tight global ending stocks, as reported in the August WASDE report,
• How to ‘corner’ a rally on corn prices,
• StatsCan’s predictions for Canadian corn production, and
• The falling price of U.S. grain exports
Hedge fund managers turned more bearish on corn prices by the end of August, nearly quadrupling their net short position.
With US corn yields looking more and more like a possible record, it remains the cheapest option in the world market. Argentina is starting to be a bit more competitive with US port prices, but American corn still is the most affordable in the international market.
To be more on top of the what’s affecting corn prices and so you can make more sense of grain markets, join us for your free trial at GrainCents.