The corn market has chewed through bearish news since March. From the impact of COVID-19 on demand, to ethanol plants being forced to temporarily halt production, it’s not just demand weighing on markets. USDA’s March Prospective Plantings report revealed U.S. producers plan to plant 97 million acres of corn this year, and with trendline yields, that creates hefty supplies.
Brian Splitt of AgMarket.Net says the latest USDA WASDE report showed carryout for old crop corn was increased slightly more than what the trade was expecting. The agency also reduced corn used for ethanol. Still, he says the report wasn’t overly bearish.
“We did see corn for feed increased, not enough of an offset to keep the carryout static, but I don't think that this report was exceedingly bearish and if anything, I think it just confirmed everything that we know.”
Splitt says after the latest USDA report, prices didn’t seem to have an immediate reaction, the front month contract prices trading in the $3.30 range
“I think one of the things that we need to be aware of is that really over the last 13 years corn does have a very good band of support between about $3 a bushel and $3.30 a bushel,” says Splitt. “We are at the upper end of that very good low value range for corn right now.”
USDA also confirming China is buying corn, with a weekly sales number that showed 1.8 million tons in purchases. Splitt says that doesn’t completely offset lost demand for ethanol, but he thinks it’s a step in the right direction.
“It's going to be something where between corn for feed and corn for export – and again, looking at the weekly numbers that we had this week the 1.8 million tons of corn is a very stout number - that is more than what we need to have on a week to week basis to hit the USDA marketing your goal,” he says.
Splitt says he doesn’t expect those large weekly export numbers to continue, but more demand could surface as Brazil is boasting high corn prices right now, with prices even breaking records.
“Brazil's probably going to need to import from Paraguay and from Argentina,” says Splitt. “That's going to take South America basically off the list of exporting countries to the rest of the world. I would expect that the U.S. will continue to be the shop where world buyers are going to go, as long as that's the situation, and I do think that with the world numbers that we've saw on Thursday, USDA did reduce the Argentine and Brazilian soybean crops but they didn't touch corn. I think those revisions are coming in the future.”
Demand Loss, Growing Supplies
Even with a potential increase in corn exports, the corn market can’t ignore demand destruction taking place in ethanol. With the loss of domestic demand, Split thinks USDA could reveal more bearish news in May.
“I tend to think that the May WASDE may be the capitulation event for the corn market,” says Splitt. “That is when we're going to get the USDA's first official balance sheet for new crop.”
Splitt says he’s been concerned about a new crop carryout above 3 billion bu. since last fall.
“We're going to be looking at that probably on this May report where with the revision higher on old crop stocks, revisions lower on demand, and the extra acres that we had on this March Planting Intentions report, we would expect that the first new crop balance sheet number is going to be north of 3 billion bushels.”
He says even if that big of a number is printed in USDA’s next report, he thinks the market can chew through the bearish news in May and move forward.
“I think when you put that in the market, and potentially another revision lower on corn for ethanol demand, unless there is an extreme change in world energy values in the next month, I would expect that that's probably going to be about the most bearish number that we deal with, and hopefully from that point forward, we start to have that conversation about - which we've had every year since I've been doing this - what if we don't have a trendline yield?”
Splitt thinks after the May report, the market could shift its focus back to weather.