Big Crops and Grain Prices Turn Higher
Today’s crop report produced another record yield for corn, yet prices have turned higher. Since August 2, our research predicted a low of around 385 on December corn, and that bottom would occur between mid-August and Labor Day. The actual low was 385, and the bottoming date was August 27. I have been advocating that yield is losing its bearishness after the August crop report, and that demand will start to become a factor. For the last several months, when corn prices have become cheap, we have seen monthly demand of roughly 50 Mil Bu above what the USDA would have anticipated. The catch is corn prices are not high. When compared to last fall, they're cheap; compared to last winter, they're cheap, and you get the point: compared to last spring, they're cheap. When corn prices are cheap, the cure for low prices is low prices. Demand is going to surprise everybody this winter in the future, similar to 2020, which had seen the crop yield decline every month, but at the same time, demand was exploding. Just go over and look at Mr. US dollar. It’s bounced off of the 100.00 price range and is stagnating, waiting for another lower collapse.
With the potential of US dollar dropping to 95.00, corn sales are going to at least surprise USDA by a factor of 25 Mil Bu a month along with ethanol grind increasing, where the fact remains that the USDA is going to have to scramble to catch up with the demand that it’s so consistently missing year-over-year at the beginning of the crop year.
As we advance, we do not expect a sharp rally, as it takes supply cuts to create sharp rallies that are sexier and more fun to play than a demand-led rally. Demand rallies have fits and starts that get checked on the way up. That means it is easy to turn bearish quickly unless you can see the forest from the trees. That demand will be a problem for the USDA, and that carry out for new crop, which is already within striking distance of two Bil Bu, could easily find its way down to 1.8 Bil Bu, and their ladies and gentlemen is how you can envision March corn making it to five dollars by January/February when our export pace for corn is at strongest.
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On the date of publication, Eugene Graner did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.