- The loudest conversation in the ag industry these days has to do with guesses on US corn average yield as compared to USDA's guesses.
- This is a pointless game as it is completely weather dependent and will change many times over the course of a single day.
- The real question is what to do about demand, for if a change is not seen the cash market could still follow the path laid out during the 2010-2014 timeframe.
I was asked to join a social media conversation about national average corn yield Thursday evening. Thankfully, I had already turned off my phone for the night, a way of declining the invitation to a discussion I see no point in taking part of. For the record, Barchart released its updated yield estimate earlier this week, coming in at 177.8 bushels per acre (bpa) with total production of 14.975 billion bushels (bb). Two weeks ago those numbers were 177.9 bpa and 14.988 bb.
There is no reason for me to get involved in the yield debate for a few reasons:
- First, I have not, do not, and will not play the game of pin-the-tail-on-the-donkey with USDA guesses. Why? What possible good comes from trying to be the closest guess to USDA’s latest guess?
- Because it is all irrelevant. It doesn’t matter if corn yield is 160 bpa or 180 bpa, there are so many other factors that have to be accounted for including planted acreage, carryover bushes from the previous year, and the great unknown of demand.
- Corn, like every other ag production commodity, is a weather derivative and therefore depends on what happens with weather patterns. Today’s guesses will change, not only with every forecast model that comes out (seemingly), but with what actually happens.
The bottom line is this never-ending game is a colossal waste of time, time that would be better spent actually studying what the market is telling us. Yes, I know, that isn’t as much fun, is it? The study of real fundamentals versus playing a game. But that’s how life is, right?
What do we know about the corn market with the end of June fast approaching? For the sake of this discussion, I’m going to consider the hybrid September contract (ZCU23) part of the new-crop market based on the 2023 crop being planted early meaning an increased possibility of more acres planted and more acres harvested in August. We’ll see if USDA agrees with that logic in its June 30 Acreage Update report (Yes, I used the oxymoron of USDA and logic in the same sentence). Thursday’s close showed the September-December futures spread covering 10.5% calculated full commercial carry (cfcc), which by my table is comfortably below the bullish 33% threshold. If we go back to the end of May we see the same spread covered 16% cfcc, meaning the commercial view of new-crop corn has grown more bullish during June.
Additionally, the September-July24 spread closed Thursday covering 7.5% cfcc as compared to the end of May reading of 19%. Again, the bottom line is real market fundamentals have grown more bullish. What can we make of this? Given we know almost nothing about 2023-2024 demand, other than feed is expected to drop from 2022-2023 due to a smaller cattle herd, the spread activity tells us expected 2023 supplies are tightening, with the focus on production and weather.
But here’s where things get interesting. If we take an updated look at my monthly close-only chart for the national cash price index for corn, we see it continues to track the path laid out during the 2010-2014 timeframe. This includes the June rally that saw the index gain as much as 94 cents from its late May low near $5.88 to this week’s high near $6.72. Based on Friday’s early activity, the index could be sub-$6.40 heading into the weekend.
What does this tell us? We know demand for US corn is not strong, with the latest weekly export sales and shipments update showing the US on pace to ship 1.64 bb during the 2022-2023 marketing year. This is down 30% from last marketing year’s reported shipments of 2.35 bb. Feed demand has also dropped from last year, with pre-report guesses for Friday’s June 1 Cattle on Feed report showing an expected year-to-year decrease of about 3%. If USDA agrees, it would be consistent with numbers going back to this past February. Therefore, we can say feed demand is down about 2% (on average) this marketing year while export demand is off 30%. The third leg of the US corn demand stool, ethanol, has also been projected to decrease during 2022-2023.
While I still think US supplies have been officially overstated for a number of years, it doesn’t matter if demand goes away. A friend of mine, a cattle feeder from central Nebraska, asked during cash corn’s recent rally, “If nobody wanted to buy it at $5, who’s going to buy it at $6?”
Given all this, the question we should be spending time debating is what to do about demand. This brings real issues like trade policy, currency values, and of course global weather into the discussion. But those are hard issues, unlike making guesses about guesses. Which is why we usually see endless chatter on the latter.
More Grain News from Barchart
- Option Expiry Day for July Wheats
- Wheat Futures Worked Higher
- Soybeans Dropping Another Double Digits
- Corn Futures Leading the Grain Drop into Friday’s Day Trade
