The grain markets are characterized these days by a lack of information. That lack will be filled soon as many pieces of news are about to hit the markets.
We have talked for several months about the impact of the March 31 Prospective Planting Report. It will soon be here, but also coming soon are other news bites that could strongly influence futures grain prices.
Corn/bean ratio
Yes, the Prospective Plantings Report could shake the market, but traders are fairly comfortable with the assumed planted acres. We are looking for 94 million acres of corn to be planted this coming spring, but we don’t know if that is what the U.S. Department of Agriculture will confirm in a few days. It is a significant increase from acres planted last year and is based on the idea that the relative prices of corn and soybeans (aka, the corn/bean ratio) favor planting of corn.
I have noted in past columns why that may or may not be true. The biggest reason is that historically, if large corn planting can be justified by the relative cost of production, there is a tendency to plant corn. It is assumed that farmers like to plant corn, and the harvest is easier. Additionally, there is a tendency to plant more corn if the weather is good.
A couple of weeks ago in this space, I expostulated why this might not be true. It is my opinion that a lot of farmers prefer to plant soybeans because the technology of Roundup Ready soybeans and flex-head combines make that crop less risky and because the cost of production is lower. Since then, we have seen corn prices go higher, encouraging corn and then go lower, discouraging corn. So, I am even more dubious about the accuracy of the prereport guesses.
Of course, then we have the problem of the prereport numbers not being correct. We need to actually guess how many acres are in the report and how many we actually plant. That number cannot be known without being able to predict the spring weather over a large area of the Midwest.
Unknowns
This year, we have other unknowns. We have a new administration that is introducing the idea of a worldwide tariff war. Most observers suggest that this hurts exports from the U.S., at least in the short-run.
I am not sure how much of the negative impact from tariffs comes from the actual resultant trade impact and how much comes from just the introduction of uncertainty to the market.
Traders are likely to fear, and trade for, cheaper grain to be safe. The fact that the end result down the road could be positive for prices is not so easy to bet. For that, we have to not only bet that the prices get better, but also that they get better fast enough to prevent negative impact on farmer cash flow for an extended period.
Tariffs may not be our biggest problem. A couple of days ago, I read an AgWeb/Farm Journal article that said we could have a policy change so that a Chinese vessel would be charged $1 million to load in a U.S. port.
I don’t know if this is to keep our grain on our ships, or if it is a nod to the Chinese influence in the Panama Canal that is contributing to some of our ships being assessed $1 million transit fees.
I am not sure how much of the Chinese-bound grain goes out of New Orleans export elevators (or more accurately NOLA elevators), requiring Panama Canal transit and how much loads off the West Coast. I suspect most goes through New Orleans.
Safrina crop
The tariffs have been delayed until April 2, which is getting close. Right now, our corn is the cheapest in world trade. It may not remain that way.
One factor is the Brazilian safrina (second) crop. This was planted in February and will pollinate in May. There was trouble planting it because of dry weather, since the Brazilians will not plant unless there is enough moisture in the topsoil to germinate seed.
In this country, we just hope for dry weather to plant and then regular rain to incorporate spray in conventional seeds and to germinate the seeds. Then, the Brazilians have to get good weather in May, as the pollination period is susceptible to hot weather, just like us in July.
Given improved weather, we are now expecting a good Brazilian safrina, and the volume of that crop has been increasing by the year until they export almost as much corn as we do. We now are second to Brazil in exports for soybeans and corn since some of their first crop corn and most of their second crop is exported. If tariffs make us more expensive for corn, we may be screwed.
Looking at futures quotes, the May corn was trading at $4.64 1/4 at midnight going into March 25. The last high was at $5.18 3/4 on Feb. 19. The recent low was $4.42 1/2 on March 4.
May soybean futures have had a dollar change recently. The high was at $10.92 1/2 on Feb. 5, and the recent low was at $9.91 on March 4. We have not rebounded off the low much, and it would take a high corn acreage number and a low soybean acreage number to make a good rebound.
