U.S. corn troubles may turn market around

Seeding progress is well behind normal in the U.S. corn belt as wet and cold conditions keep farmers off of their fields

The United States corn crop is off to a shaky start and that could result in elevated corn and wheat prices, says a grain market analyst.

“That is the one commodity that has potential to change colours the quickest,” said Arlan Suderman, chief commodities economist for INTL FCStone.

Seeding progress is well behind normal in the U.S. corn belt. Wet and cold conditions are keeping farmers off of their fields.

The U.S. crop was 30 percent seeded as of May 12, which is less than half of the previous five-year average of 66 percent. Illinois is 11 percent complete compared to an average of 82 percent.

Delayed seeding will likely result in reduced acres. Suderman has heard one-third of the little amount of corn that has been planted in Illinois will need to be replanted.

“The potential is there to lose three to five million acres,” he said.

The USDA is forecasting 92.8 million acres of U.S. corn, up from 89.1 million acres last year due to the switch out of soybeans.

Suderman thinks it will be more like 91.2 million acres due to delayed seeding but it could be as low as 89.5 million acres.

There is also yield loss potential with corn seeded after mid-May.

The USDA is forecasting an average yield of 176 bushels per acre. Suderman thinks that is reasonable. But every week the crop doesn’t go in the ground he will ratchet back his yield estimate. It could go as low as 170 bu.

The combination of reduced acres and yields could result in a 25 to 40 percent increase in corn prices.

“That would support wheat as well,” he said.

Suderman isn’t ready to reduce yields just yet because it is early in the crop year.

Using 91.2 million acres and 176 bu. per acre, he gets 14.76 billion bu. of production and 2.16 billion bu. of carryout.

That is well below the USDA’s forecast of 2.49 billion bu. of ending stocks in 2019-20.

He said that was probably the single most discouraging number in the May 10 USDA crop report.

Suderman thinks the USDA erred on the size of the 2018-19 crop. It was about 250 million bu. bigger than they initially thought but the USDA typically doesn’t make revisions on the previous year’s crop size until the September report.

Instead, it reduced feed demand to make everything balance.

Finding an extra 250 million bu. of corn was a bearish development for the market. But that would be more than offset by lost corn acres and yields if seeding is further delayed.

If U.S. growers only manage to plant 89.5 million acres of corn and the average yield drops to 170 bu. per acre, that would result in 1.35 billion bu. of carryout and a friendly 9.1 percent stocks-to-use ratio.

The average 2019-20 annual cash price under that scenario would be $4.95 per bu. compared to $3.55 under Suderman’s current forecast.

“That’s how quickly we could turn this around and that’s without a trade deal with China,” he said.

A pact with China that results in increased U.S. corn, ethanol and distiller’s grains exports to that market would make the supply and demand balance sheet even friendlier.

Weather forecasters are predicting a wet and warm but not hot summer in the U.S. Midwest. Most don’t think it will be as wet as 1993 but that is still a possibility.

“In that year the markets kept selling off until sometime in late June and then all of the sudden they realized how bad the damage was,” said Suderman.

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