Corn

Summary:

The past three days have seen corn fall from new highs for the uptrend back to prices last seen on May 1. The light summer yield stress story has been shaken with Thursday's long term weather forecast update from the government. A light yield hit is needed to justify some type of spring/early-summer premium for price. We're not going to get higher prices without it.

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Thursday's weather forecast update from the Climate Prediction Center has removed much of the risk-on discussion. The June-only forecast now suggests the recent beneficial moisture pattern, normal to above normal moisture, will continue through June. Additionally, instead of above normal temperatures for all the vast majority of the Midwest will see normal temperatures.

Updates to the CPC summer forecast also suggest less stress ahead. The temperature forecast will remain largely the same as prior forecasts, above normal. But they've essentially pushed all of their moisture problems back by one month. For July, as suggested by the Jun - Aug maps, only Central and Western Nebraska and Kansas would see moisture stress. This is key for corn with a pronounced weather importance right during reproduction. The August forecast, as suggested by the Jun - Aug maps, would allow for stress for the West. The general summer forecast here, if exactly realized, would still suggest lightly below trend yields for corn and soybeans. However, we hesitate to suggest it would result in a change to the general supply narrative.

Emater, the crop agency for the far Southern Rio Grande do Sul state in Brazil, estimates the corn harvest advanced from 86% complete last week to now 88%. Their recent extreme rains are a soybean issue, not corn. Using very sloppy math a 122 million tonne total corn crop estimate x 20% 1st crop x 18% Rio Grande do Sul x 14% unharvested = 614,880 tonnes. That is only 24.2 million bushels of corn “at risk”.

Several rounds of moderate rains over the next two weeks continues a pattern of above normal rains for most areas in the Midwest. Most of the West will see 2.5 - 4.8 inches. The Dakotas and half of Iowa  may see 0.2 - 1.8. Precipitation forecasts for the East have set back, 2.5 - 7.0 inches yesterday have transitioned to 0.9 - 2.4. Lightly delayed planting will remain.

Rainfall over Brazil's four second crop corn states has run short for now three weeks. Last week's rains were -94% from normal, two weeks ago -55% and three weeks ago -60%. The two week forecast ahead is normal to below normal. Their long harvest of the big second crop is from June through September.

Nationwide US corn planting advanced from 36% complete to now 49% over the past week. That was on the 49% trade expectation. For a second week in a row planting is behind the five year average, now 54%. Planting is the 4th slowest by this date of the past 25 years. It is the 8th slowest of the 39 year of history with this data set. Planting pace is a determinant of final yields, albeit a small one. A very ugly model would suggest -2% from trend yields just from planting, not including summer weather risk. That would put the US at 177.4 bpa vs. USDA's 181.0 trend. Allendale is not officially lowering yields under trend at this time.

Yield Declines and Summer Rallies: Despite a lot of hoopla, fear, greed and ideology US corn yield changes are relatively minor. Final yields in the prior five years ranged from -2% to -5% from USDA's view of starting trend. That was due to adverse weather. The prior five years all ended above USDA's view of starting trend, +1% to +4%. That was due to beneficial weather. We will clearly state that yields over the past eight years specifically, were all much better than you would expect given the weather mix. These years have negated about 30% to 40% of the potential yield hits that the same weather mix would have brought from prior decades. For moderate to large yield changes, over the past 25 years there are only four in question. They were 2002 at -6%, 2004 at +13%, 2011 at -9% and 2012 at -25%. Reasonable yield scenarios are essentially trend, -2.5% and -5.0% from USDA's starting 181.0 view of yield. Using Allendale's view of 2.3 billion stocks at trend, we compute -2.5% yields (176.5) as bring stocks to 2.1. A -5.0% yield hit (172.0) would imply 1.9 for stocks. It would take -7.5% to bring a 1.7/1.8 stock view. That is the amount you need to mathematically justify $5.00 futures. The prior summer weather story would get us there for a limited time. This week's update, which includes beneficial weather through June and no real problems in July, would make this hoped-for rally difficult. For those doing these balance sheet exercises yourself, we assume a standard 50% offset to demand for supply changes. As you know, grain demand is not its own animal. Demand flows with supply changes. We could make these even more bullish if we started with USDA's view of 2.1 billion for stocks at trend yield.

USDA has US old crop ending stocks at 2.022 billion bushels. They have new crop, using trend yields, at 2.102, That was under the 2.284 trade estimate (ALDL 2.319). It is also lighter than the 2.5 estimate USDA discussed at their February conference. This would imply July and December futures near $4.00. With a summer risk-on story, which is valid in a light way given the summer forecast, a moderate rebound in price into early-summer is reasonable. Our studies involving heavy supply years, studies involving annual trade range analysis and other factors would verify this view.

Upside Implied from the December Corn Trading Range Study: Over the past 20 years the trading range for December corn, between January 1 and expiration, has ranged from 82 cents wide on the low end up to 509 ¼ cents wide on the high end. The average range of those 20 years was 183 ¾. Excluding the high and low numbers of those years shows an average of 171 ½. If we assume Allendale's bearish fall low price forecast of 380 - 400 and add a conservative 100 cents then a 480 - 500 high does not seem that much out of range. That, of course, assumes a summer risk-on weather rally. This also coincides with the 503 chart gap from 12/29. It also coincides with the 512 peak implied by our similar year studies.

15 Year Seasonal for December Corn: A simple average of the prior 15 years of December corn price action show a typical peak for the year on June 8. This average includes a wide mix of both heavy and tight supply years. No filter has been noted for a year like this. That is shown by the similar year study below. This may be a little earlier than many would think. Fall lows for this contract average on October 2.

Upside Implied by the Similar Year Studies: The general economic value measurement of “sub-$4.00” December futures, just gives us one ugly price for where prices may eventually go. It does not show the minor ups and downs within the year. For pricing within the year we often look to similar year studies. Our $4.66 and $4.72 downside targets for the recent low in July and December were exceeded, actual $4.22 ¼ and $4.46. The positive side to our analysis of price action in other heavy supply years is they all held minor rebounds in the general path of a long term downtrend. We would suggest current pricing is right now in one of those rebounds. For timing wise, this would likely be the last chance for producers to do serious marketing. In none of the heavy supply years was there any real interest in a July/August rally. $5.07 and $5.12 respectively would be the targets for a spring high. The July would end at $3.87 before expiration. The December would see harvest pricing at $3.83.

Old Crop Marketing - We'll note, with light surprise, that corn basis advanced 8 ½ cents from April 26 - May 8. Current levels are now right back at the minor peak from March 13. It is also positive as current values are back over the average of heavy supply years, -18 cents as of this date. We are modeling this year's shape of basis on those specific years. While we do not expect this firmer basis to hold, it is better than expected for now. On 3/8 we sold 100% of old crop and re-owned for a basis play. The next two weeks are typically the time when basis really diverges between light supply years and heavy supply years.

July Corn Chart: A setback from recent strength has been noted. The general upside target is the 494 intraday gap from the 12/29 close. Support is a bit away from here, 443 3/4. December has also set back from recent strength. The general upside target, the 502 ¼ - 503 daily chart gap, is still close. Support is some ways away, 467 1/2…Rich Nelson

* Allendale is putting together its 2024 in-person outlook/marketing meetings. If you would like a meeting in your local area contact Lynsey at 815-578-6170.

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