Corn Crop Off to a Good Start: Future Uncertain

Despite a wet spring in some areas, the corn crop was planted on time and emergence as of June 26 is one percentage point ahead of the five-year average.

This week, USDA’s National Agriculture Statistics Service rates 75 percent of the national crop good/very good and only 5 percent poor/very poor. This compares with 68 and 8 percent, respectively, last year. The Kansas crop is shown as 65 good/excellent and 8 percent poor/very poor.

The Kansas crop is well ahead of average, with 17 percent already silking, against a five-year average of 12 percent.

Likewise, the national soybean crop got off to a good start, with 72 percent good/very good and 5 percent in the poor/very poor categories nationally. Last year saw 63 percent in the top two and 9 percent in the bottom two. The Kansas crop is not among the top ratings: 59 percent is rated in the top two categories and 8 percent in the bottom two. Nor is it as good as last year’s 63 percent and 9 percent, respectively.

Of course, July weather is critical to corn yield and August often makes or breaks the bean crop. In its June supply/demand report, USDA’s projected yields similar to trend yield of 168 bu. for corn and 46.7 bu. for beans. These are based on a weather-adjusted trend model that assumes normal summer weather. USDA rarely changes its projections before August.

At a meeting late last week, Sterling Smith, agricultural analyst for Bloomberg, said he is using a 160-bu. corn yield based on the expectation that this summer’s weather will be hotter and drier than normal as La Niña kicks in. While some don’t expect La Niña to be in place until after the U.S. growing season, others see it ramping up as early as July.

That’s what has driven commodity funds to flip from a short position of 265,394 contracts on March 8 to a net long of 280,642 contracts – meaning they bought more than 546,000 contracts in just over three months, according to Smith. This provided a rally from $3.70 to $4.40 in December corn.

“Given prices as of June 20 and 160-bu. corn, estimated margins went from strongly in the red to about $29/acre of black ink,” Smith said.

Still, the industry hasn’t seen the kind of move that occurred in 2012, when funds bought a much more modest 289,253 contracts over a 60-day period and prices soared from $5 to $8.

“This suggests they may be back with more money this year if weather actually does turn adverse,” Smth said.

The situation is similar for soybeans: Fund holdings are not far short of the record long position of 259,763 contracts set May 1, 2012, after being short almost 87,000 as of March 1, 2016. November 2016 prices rose from the $9 area to $11.75 in mid-June before easing lower again.

Fundamentals look a little better for soybeans, with ending stocks projected at a not-excessive 260 million while corn’s 2.008 billion ending stocks are among the highest in decades. Smith expects USDA’s planted acreage report on June 30 to come in with 1.85-2.1 million more acres of soybeans and for corn to be just a bit lower than intentions, probably not more than 1 million – probably not much of a surprise to traders. So it’s all about weather. And the fact that investors still have money in their checkbooks and few places to profit from it.

Impressive wheat crop

Meanwhile, with winter wheat harvest going full bore through Kansas and Oklahoma and moving north, its condition is rated as 62 percent good/excellent and 9 percent poor/very poor. Last year, the national rating was 41 percent good/excellent and 23 percent poor/very poor.

The Kansas crop is 64 good/excellent, compared with only 41 percent last year. Just 8 percent is considered poor/very poor against 64 percent last year. Yields ranging from 40 to 80 bu./acre are being reported and test weights, from 58 top 65 lb./bu. Of course, as always, not every farmer is enjoying above-average yields. Hail and heavy rain/strong winds have taken their toll for some. If you are one of the unfortunate, contact your local crop insurance team for help with your claim.