Is China the Only Answer to Save Corn Prices This Year?

USFR 080120 - RT2
China made a monster buy of U.S. corn this week, but weather seemed to take center stage. So, what will it take to get corn prices to move higher? U.S. Farm Report analysts weigh in. ( MGN )

China made a monster buy this week of corn. USDA confirmed the 1.9 million metric tons sale was the third largest on record, and the biggest U.S. corn buy ever by China. 

Even with the new demand, the corn market still seemed unphased. Analysts say much of that was because traders were focused on the weather Thursday. Drought-stricken areas of the Corn Belt saw some rain, helping revive some of the crop needing rain. That positive weather added more pressure to already low corn prices.

What will it take to boost corn prices moving forward? Some analysts think it’s going to take more demand from China. Darin Newsom of Darin Newsom Analysis saw China may be part of the equation, but not all of it.

“Thinking that our great trade war enemy is going to be the one to step in and save the corn market, the ethanol market, soybean market, soybean meal, pork, cattle, whatever else, seems a bit foolhardy,” he says. “Does the US need China? Absolutely. Are they going to step in and save all of our markets? Absolutely not.”

Newsom says the biggest advantage the corn market has right now is not only low prices attracting buyers, but also a weaker U.S. dollar

“If we just look at this from a business point of view, and put all the politics aside, U.S. crops and US supplies are going to have given a good value on the world stage going into 2020-21,” says Newsom.  “The question is, ‘Will it be enough to offset the political side? And what happens in November?’ So, do we need China? Sure. Is it going to happen? I think the jury's still out.”

Tommy Grisafi of Advance Trading says the weaker U.S. dollar is also helping make corn price more attractive.  

We have a lot of corn to sell them and just think time that how affordable our corn must look with the American dollar multi-year lows,” says Grisafi. “Our corn is on sale, so Americans watch corn based on dollar prices, the rest of the world has to convert and everyone's looking at our grains corn-  wheat, soybeans, rice  and meats - they're like, ‘wow, can I buy a lot,’ so that's a great situation.”

Grisafi says even though corn prices may be priced right for buyers looking for cheaper prices, it doesn’t mean corn prices are definitely going higher.

“Darin touched on November, and every year when you talk marketing with farmers, there's always something that shocked them that year,” says Grisafi. “To the American farmer, I look straight in the camera and tell you as you watch this, the election is 95 days away, that's going to happen.”

He says no matter what the outcome of this year’s election is, there will be a large percentage of the country not happy with the results.

“But we do have an election, so you need to have a marketing plan that works through elections, through pandemics, through the government giving you $28 billion in the last few years,” says Grisafi. “The current environment, which is strange, not being able to go to a movie theater, walking around with a mask, but that's what's happening. We have to tighten up the bid and between reality and perception, realize this is the America we live in. This is the world we live in. But the best thing we have going on is that weak dollar and I think the farmer, if they could understand the potential, that it's really going to help them next year.”

Newsom says to keep in mind this is a time of year when corn prices typically don't move higher. 

"Seasonally, this is not a good time of year for the December corn contract," he says. "It does tend to move lower through early September, and what I found interesting, going back to the old days when folks like Tommy and others were actually on the floor, the idea was corn likes round numbers. So, I think it was on Tuesday when we actually punched through to $3.29. So historically, that would tell us we should next stop for these corn would be $3.20, and that would mean a new contract low. I agree with Tommy, I think there's a good possibility lower prices are on the way."

Newsom adds if corn can find some more demand and the market seems more buys, maybe there's room for prices to stabilize. However, he remind producers seasonally, he thinks there's some more downside.