Soybeans May Be the Buoy Corn Prices Need

USFR-RT1 05232020
Could the worst of the price action be behind corn prices?  Analysts think a floor may be in, but warn producers not to become bullish.
( AgWeb )

Corn prices continue to hold above $3, and soybeans remain above $8. As more states start to open back up, driving demand is also finding support. So, could the worst of the price action be behind corn prices?  Analysts think a floor may be in, but they warn producers not to become bullish.

“The USDA had North Dakota planting 3.2 million acres of corn this year, I'm going to say at least 1 million acres go unplanted,” says DuWayne Bosse, of Bolt Marketing.  “That will be prevent plant. Remember that deadline's coming up here on Monday for them for the crop insurance plant date, so this year you're not seeing a big rally in the corn market to make them keep planting later. And if the land is muddy and wet, there's no sense of mudding it in. I think you'll have at least a million acres off in North Dakota, maybe a half million off in South Dakota, as well.”

It’s a different crop conditions story in the Western Corn Belt. While rain swept states like Nebraska on Friday, dry conditions are starting to expand and more rain is needed. Bob Utterback of Utterback Marketing says he has clients already started to feed their crops rain by starting up pivot irrigation systems.

“I think the trade is actively factoring down a fewer acres, down from 97 million March projections. I think the trade is moving into that 75%, maybe 70% for best case for crop conditions. With the crop condition coming out right around the corner, the perception is conditions will be at least 70% good to excellent, which will be at historical norms. That suggests we’re still on track for a 2017 crop year in that 177 [bushel per acre average yield].

Even with big corn acres and supportive crop conditions, corn prices on the board haven’t dropped below $3. Bosse thinks that’s a supportive sign.  

“You're throwing a lot of acres, big expected increases in demand that might not happen, like Bob just mentioned, growing conditions are spectacular,” explains Bosse. “The crop ratings are going be high when they come out. The fact that you threw all that at the market and it didn't make new lows is positive. The other thing is the funds selling left and right. So, the funds are building a big short position here, and the fact that we didn't make new lows is friendly to the market.”

Bosse says he wouldn’t go as far as saying those factors are bullish to the market, but he says it could mean a floor is in place for corn prices, possibly stopping the bleeding of the market. Utterback says the fact oil is starting to trend higher could also be supportive to the corn market.

 “I think we'll stabilize at this low level, which is stable for corn and soybeans,” adds Utterback. “But gasoline demand has been down almost 50%.  I think we're all kind of holding our breath to see how fast will demand come back. I think it's a story that has to unfold. I don't think it could be as optimistic as some want, but it's not going to be more pessimistic.”

As the U.S. enters the summer driving season, gasoline demand is making a slow comeback, but Bosse says it’s unrealistic to think demand will fully recovery anytime soon.

“It might take some time to go back 100% just because we don't have the same demand,” says Bosse. “People aren’t going to travel the same way. Look at air travel right now, down sharply year over year. If we get back to 90% I'd be happy, and I think corn producers would be happy too, but 100%, that's asking a lot. That might be a year out, to be honest with you.”

Utterback says the real danger to the corn market is the potential carryover of more than 3 billion bushels, with some estimating it could end up being close to 4 billion.

“Everybody wants significantly higher corn values when beans could be what saves it, and it's going to be very difficult for farmers to sow into the summer weather scare bounce, if we see it.”

Utterback thinks the agriculture aid announced this week could provide a false sense of security for corn producers.

“There are a lot of balls in the air, just don't get too bullish to corn, but we probably put the low in right now,” says Utterback.

Bosse also thinks soybeans could provide support for corn this year, especially when looking at lower soybean acres.

“I think the bull out here is actually the soybean market,” says Bosse.

Bosse adds North Dakota is having trouble planting soybeans, as well, something that could eat away at the final soybean acreage total.