The Corn Market Needs Much Fresher News Than a Hot and Dry Forecast

I grew more corn this year than I did in 2016.  It’s gotten off to a bit of a rough start.  I had to rotary hoe my first field, which I planted in April.  It looks pretty good now, albeit a little thinner than I would like.  The rest of my corn has done pretty well even though it was planted a couple weeks late.  It is a long way to payday.  However, we all know that December will come.

Unfortunately, even though my corn has made a bit of a rebound in the fields, is not the case in the corn market.  For instance we have been looking at corn in a range between about $3.77/bushel back in January to $4.07/bushel back a couple weeks ago.  It was rare air for December corn.  Over the last couple of weeks corn has crashed down currently at approximately $3.78, which is the 2017 low.  It would seem that the specter of hot and dry from a few weeks ago has been completely overtaken by benign weather and rain makes grain.

We continue to have fairly low prices.  It was almost sport this past winter among grain analysts to muse December corn would be going to $4.25.  Well, it got up to about $4.09 on June 9th only to tumble back down to $3.78 last Thursday.  Corn has been a reluctant soldier in the quest to stay above $4 a bushel.  However, one Ottawa farmer told me last week don’t worry.  When it gets hot and dry in July we’ll finally have that summer rally to take December corn up to $4.25 a bushel.  Of course, as I’ve said many times nobody knows.

On the social network twitter I often post the history of corn prices that goes back to 1972.  The graph starts out at about $1.30 bushel and goes up to $8.49 a bushel in 2012, the all-time high in corn.  The graph spans over about 40 years and shows highs in corn in 1974, 1980, 1983, 1996, 2008, 2011 and 2012.  The prices we have now of course are more akin to the prices that we had in 1983.  However, that does not take into consideration the huge productivity increases in corn over time.  In other words, back in 1983 we might have been happy with 150 bushels per acre, but now we’re less than satisfied if we don’t get about 200 bushels per acre.  Our prices reflect that and that graph that I post often fools a lot of people.  Looking at static prices of corn through the years is fun, but it doesn’t really have a lot to do with the profit corn environment 2017.

Increasingly, the corn market resembles its old price structure just at much more elevated supply and demand levels.  What I mean by that is our huge corn supplies seem almost to happen by default.  We have had tremendous weather over the last four years and this is resulted in the drought of 2012 only being a distant memory.  For instance, this year we are set to produce 14.065 billion bushels of corn with demand sitting at 14.3 billion bushels.  Those are amazing numbers.  The corn supply is huge and is a testament to the productivity of modern corn hybrids and new machinery technology.  The demand figure is testament to the ethanol economy but also to the many other facets of demand that continue to grow.  As long as we continue with this balancing act, prices go sideways.

It pales in comparison to 2007 when we were at the start of the corn demand driven market in front of the ethanol boom.  When you are faced with growing a lot more acres to satisfy new ethanol demand you get used to an environment where prices go up.  However, now 10 years later we have totally proven that we can satisfy this demand and in fact need something else, some fresh news to take prices much, much higher.  In fact, I would wager we need much fresher news than simply any hot and dry weather forecasts.

Another leg up for corn demand would be welcome.  In fact, it might come from the biofuels sector of the economy.  We do not know what President Trump will do with biofuels.  However, he showed up in Iowa the other day and defended ethanol in a very Trumpian way.  There was a lot of bluster, but we really didn’t know what happens next.  Needless to say, I think our American friends will take any type of support for their ethanol sector.

In Ontario, about 33% of our corn goes to ethanol. That is largely due to the Ontario government investing directly in the ethanol sector.  You cannot have ethanol demand without ethanol plants.  The Ontario Ethanol Growth Fund, which ended March 31, 2017, provided much of the funding and loan guarantees for that.  I would not be surprised in the lead up to the 2018 election that we see a renewed interest from the provincial government in fostering more Ontario biofuels production.  That will be a very good thing for Ontario corn growers.

In the meantime, it remains 2017 and benign weather is setting in to the US corn belt.  This continues to put bearish pressure on the corn market.  It has made marketing opportunities almost fleeting, with Ontario $5 corn only available for a couple days a few weeks ago.  That’s why standing orders can be incredibly important to capture opportunities.  This corn price pattern looks eerily similar to 2016.  I hope I’m wrong.  It would be so much more fun to see something else.