Crop Prices Swoon But So Much Production Risk Ahead


The calendar has turned over into August and I can hardly believe that July is in the rear view mirror. In the deep southwest of Ontario this year July was a planting month. I hope we don’t see that in 2020 and beyond. The crops look pretty good in my area now except for one problem. It is August 1st. That sticks out like a sore thumb. We are all hoping for hot temperatures, good moisture and a wide-open fall to salvage something from this year.

You might be growing tired of me talking about the problems we had with spring planting. However, it is still very real for many of us in the Eastern corn belt. It is interesting from a market perspective as well. You will remember what my colleague Elaine Kub wrote a few years ago about the best timing to sell corn. Typically, seasonality in corn means in May, June and early July, you get the high. Elaine once predicted it would be June 18th and I think in 2016 that actually happened. The problems in the Eastern corn belt this year caused the price of corn to spike earlier, but events of the last few weeks have seen the corn price go the other way. Interestingly enough, the high in corn this year so far has been close to June 18th. December corn reached $4.73 the day before.

Today, December corn closed at $4.02, a good $.71 less than it’s high. It has been a bit of a strange come down from lofty levels in mid-June. The market was late to the party realizing that the crop was not planted in many areas. Aside from that in the Eastern corn belt what was planted was was not very good. Needless to say, the market has been ratcheting down ever since mid-June and December corn finds itself down now to its lowest level since May 17th.

The question is what happens next? The easy answer is the one that I give all the time. That is, that nobody knows what the market will do. I kind of had to chuckle to myself today because I was asked to be on an American commodity panel and I was asked my opinion where I thought prices will go. Not wanting to be the odd man out as all the American analyst we’re giving their predictions, I thought I might just as well give mine too. I laughed to myself and said that I expected prices to go higher once combines started to roll. I just have a hard time with the numerous unknown factors swirling in this market.

Keep in mind, that’s just a big guess. However, there are several market factors that need to be answered leading into the August 12th USDA report. We still do not know how many corn and soybean acres were really planted in the fog of the late difficult spring. There is a very real possibility those numbers could be completely different than 91.7 million acres of corn and 80 million acres of corn. There is also the question of yield as so much of this crop is compromised. Of the crop that is there, how good is it?

Think about this for a moment. I was asked today by my American hosts how much Ontario corn was in tassel. Realistically, as of August 1st. It’s probably less than 15%. It was palpable the reaction of my American hosts. You could hear gasps in the background as they were quickly adding up whether Ontario corn would get to black layer. It’s nothing that I have not calculated before. In fact, I’ve written about a huge corn supply disruption coming in Ontario this year. Simply put, the bottom line is crops are pretty rough here and very late and we need extremely good conditions to the finish line. That is unlikely to happen.

If that wasn’t enough, President Trump chimed in today with some serious tweets talking about more tariffs to be applied on China. He is talking about another 10% tariff on $300 billion worth of Chinese goods and products. The grain market tanked on the news. Believe it or not, there are still Americans farmers who think this is a good strategy. Meanwhile, their soybean export market is a smoking ruins and the Chinese aren’t coming back.

In a market context, some people have compared this to 1993. That was characterized by a tough early spring, this time in the western corn belt with compromised crops. That year, the market chopped around at this time of year going into fall until combines starting to roll. Then we found out the crop was not there and prices went higher. 2019 smells a lot like 1993 to me. The August 12th USDA looms, but really it likely will be a speed bump. This year, combine yield monitors will likely be our first true read of where this US crop is. It will be January 2020 USDA before we come closest to the truth.