A constant stream of bad news is required to promote a bull market. There is a severe lack of news of any kind and the result has been a bearish corn market for the last couple weeks. Weather was favorable, crops looked good, and there was nothing to get trade excited about corn. The story has changed, if ever so slightly, in the last couple days. Early unconfirmed reports coming out of Illinois suggest average yields are lower than the USDA estimate for the state and could be 15-20% below last year. Concern over lower yield, news that heavy rains have flooded a few small areas, and pre-report positioning by speculators has spurred a slight rally in corn prices over the last two days.
Economics 101 dictates that prices are determined by supply and demand. When supply is greater than demand the price drops because there is a surplus. What people don’t realize is that world demand for corn is high and continues to increase just about every year. Our current dilemma stems from the fact that supply is growing faster than demand. Producers are really good at producing corn, especially in South America. South America is predicting a record corn crop this year and since they have made considerable improvements to their infrastructure, they are now a large competitor in the world market.
In the Panhandle of Nebraska overnight temperatures are dipping into the low 50s and daytime highs range from 75-80 degrees, 10-15 degrees lower than they have been for the last few weeks. On August 23 there was a spotty frost that wiped out a couple pivots of beans in the area and hurt a little corn. A large portion of this area’s corn was planted around June 1 and some of it has not even started denting yet. The million dollar question is when the first major frost is going to happen. Some producers are not taking the chance and chopping their late corn for silage and others are seriously considering doing the same.
Wheat is singing the same song, just a little bit louder. Wheat has been bearish since July 1st, dropping $1.50 in two months. Winter wheat harvest was not great with weather causing reductions in quality but it was more than made up for with spring wheat that was and is seeing great weather for growing and harvest. El Nino is extremely favorable this year and reports all around the world say that wheat conditions are favorable and crops look good. Wheat continues to take a back seat to corn and soybeans as there is still some uncertainty about yield and acres that will need to be debated. Russian wheat is still $0.40-$0.60 cheaper than US wheat.
New crop sales are lagging as the costs of production are too high relative to commodity prices. Land rental rates are number one on the list of things to give way in order to lower costs of production. Universities in several states are holding seminars on how to set a “fair” price. University of Illinois economists estimate that land rents need to drop $50 to $100 dollars in order to move the ag balance sheets so they are profitable. However, it is unprecedented to do that all in the same year in the hopes that commodity prices come back up.