Corn continues to confound the market

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corn field

Corn continues to lead the grain markets higher on the Chicago Board of Trade. Recent life-of-contract highs in corn, soybeans and wheat prove that this market move is not over, even though soybeans and wheat had their last highs in the middle of January.

Corn highs

Corn futures put in another high Feb. 1 at $5.521⁄2. This took out the Jan. 13 high of $3.411⁄4.

It is hard to believe, but the 54 cents that soybeans gained in the last week was actually overshadowed by the recent gains in corn futures. Corn was up 64 cents in the month of December, and then another 63 cents in the month of January.

Keep in mind that the ratio of soybean prices to corn prices averages around 2.5 to one, so the corn gains are similar to soybeans gaining $3.17 in the same time.

With much of the 2020 harvest sold, farmers are trying to decide how to position the new crop.

December futures have also made a high, at $4.621⁄2 back in the middle of January when the soybeans and wheat were peaking.

This means the new March corn high and the December corn futures high of Jan. 13 are almost 87 cents apart. This is normal in a rally, which is always mostly reflected in the nearby month.

Chinese demand

Corn prices are being run up by export news. Demand from China, which does not usually take any large amount of corn, has us way ahead of total export projections for the year from U.S. Department of Agriculture (USDA).

When Ukraine announced the intention of limiting exports to 24MMT this year through use of a large tariff on shipments over that amount, China booked more corn from us and put one more leg up in the corn market.

We can coast exports until the end of August, or we may significantly exceed the USDA expectations.

This comes as soybeans have stopped being the commodity pushing all grain prices, as the lowered production in South America from weather problems seems to be in the market.

Ahead of us is still the need this summer to maybe ration demand for both soybeans and corn to get us through the year without running out.

What to plant

Before that process, farmers will have to decide what to plant in a year that the market wants more total corn and soybean acres than we have ever planted before.

The number I hear is that we need 91 million acres of each. Where do the acres come from? We may see significantly fewer acres of spring wheat on the Northern Plains, as those farmers plant soybeans.

We still need acres beyond that from somewhere. The feeling is that we have a lot of time to go to sort out these decisions.

It remains to be seen if the futures market has already anticipated problems, and that is the reason for recent highs. Or, is the market poised to go higher until these uncertainties are sorted out?

Wheat

Meanwhile, wheat markets are starting to gain again, although not at the rate of the other grains. Exports are growing, with China the largest buyer.

We may be seeing larger exports only because the large buying by China is spooking other nations into earlier purchases so as to not get left out. Or, the total exports may grow beyond USDA expectations.

The Chinese like to buy spring wheat, but the spring wheat crop this year had very low quality. It remains to be seen if they will buy the best, and then switch to other types of wheat.

Ethanol

There was not much talk about ethanol this week. In general, ethanol struggles to be profitable because corn prices have boomed, but gasoline prices have only increased modestly.

At its simplest, the ethanol value is directly related to gasoline value, since it is produced to be a gasoline additive. Miles driven under the COVID-19 economy are still 90-some percent of normal, and some say they will never return to the historical levels with a permanent trend toward people working in remote offices.

Gasoline prices have been cheap, as worldwide production has been firm, and nations like Iran are not producing more than usual. The Iranian sanctions are being relaxed under our new administration.

Our new administration’s energy policies have not yet been shown in the market.

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