If you had told me after last week’s strong post-USDA performance that corn would have erased all those gains by Wednesday, I wouldn’t have believed you.
However, worries over feed demand due to the spread of Bird Flu, ideas Chinese demand for corn may be much less than we had expected, and thoughts that corn will find the acres the USDA said it lost last week weighed heavily on this week’s trade.
When it comes to the spread of Bird Flu in cattle, it is important to remember, this virus does not affect cows the way it affects birds. For birds, the virus is incredibly contagious and deadly, making the culling of the animals in the barn its discovered necessary. As for cows, based on initial findings they act off, with reduced milk production and feed consumption being two of the biggest signs they are sick. The mortality rate in cattle so far appears non-existent, with symptoms mostly mild and any affected cattle recovering in 10-14 days.
When it comes to risks associated with milk, pasteurization kills the flu virus, making the milk and milk products you buy at the store entirely safe.
As I said, that is not the case for birds, with one bird feeder in Texas saying they had to cull over 1.5 million chickens in one of their facilities due to the discovery of the virus. As wild birds migrate north, they will take the virus with them, threatening further spread across the country.This is not news however, with this strain of the Bird Flu said to have been around for over 20 years. The recent uptick in spread among birds seems to have kicked off in the spring of 2022, first seen hitting wild bird flocks before affecting backyard flocks and commercial poultry producers.
As mentioned, for birds a discovery of the virus means all birds in that flock must be humanely euthanized and that barn must be cleaned, disinfected, and left empty for upwards of a month before repopulating. Of course, that means whatever feed those animals would have eaten that month will be left untouched, however, when it comes to overall demand, the amount of corn a bird eats each day is smaller than many tend to assume.While any story that could sway public sentiment in a negative way is always concerning, the finding of Bird Flu in cattle is not even remotely on the same scale as past cattle demand decimating horror stories like Mad Cow or Pink Slime.
As for Chinese corn demand, it appears that in the 16 months or so since the rollback of Covid restrictions grain has gotten back to moving relatively freely across the country. The ability to ship grain between provinces and let the cash market work, as well as the great increase in supply seen over the last couple of years has pushed cash corn prices to multiyear lows across China. Depressed corn prices make for depressed farmers, with Chinese officials worried that if prices don’t stabilize or increase soon, farmers will opt not to plant corn.
As a result, rumors started to circulate this week that the Chinese government will limit where imported corn can move in the country. At first it appeared the government was looking to keep bushels out of traditional tariff free zones, trying to get local end users to source domestic bushels instead. The talk of restricted movement pushed many importers to pull their bids while they wait to learn details of the change.
While the rumors came from anonymous sources, with no confirmation just yet, additional rumors continue to circulate that they are also looking to cancel up to 1 million metric tons of corn already purchased from Ukraine. From a cash market perspective, Ukrainian values softened a bit when the news circulated and bids were pulled, but values appear relatively stable otherwise, though cheap.
With Chinese demand one of the bigger underlying factors that helped send us to multi year highs in the corn market in 2021, how they approach the market in the months ahead will prove to be nearly as important as the weather.
Lastly, the idea that the USDA survey was wrong, and that corn acres are guaranteed to increase in June, while not entirely out of the realm of possibility, is not the slam dunk folks think it is. Sure, we are probably low on the entirety of principal acres with the over 6 million acre drop year over year, but the idea corn will pick up all that is lost is pushing it.Acres are lost every day, both to development and to better cropping decisions for that farm. Here in Michigan the switch to more beans is real, it makes for greater net revenue all things considered now, and I know we aren’t the only state outside of the Corn Belt that is seeing similar decisions being made. Yes, corn is king across much of the country, but at $4.70 futures and around $4.30 cash for harvest delivery or worse, folks just plain aren’t excited to book a loss.
Mother Nature will be the true deciding factor of what gets planted, with rotational aspects next and price pulling up the rear. While it is true, we will likely see some additional acres found in June, I would pump the breaks on writing 92+million acres of corn into your balance sheet in pen just yet.
In the end, while corn did not have the week many had expected, the overall story has not changed much since last week at this time. Bird Flu is important to watch, but when it comes to its discovery in cattle it is not the bear story in either cattle or corn folks like to think it should be at least for now. Chinese demand remains the biggest driver in the short-term, with all eyes on what they do next week after their return from a long weekend. After that it’s all weather, all the time.
As always, please don’t hesitate to reach out with any questions. Have a great weekend!
On the date of publication, Angie Setzer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
