Corn futures have traded back and forth this week, based mostly on weather. The forecast has indeed trended wetter and a bit cooler across the Central and Eastern Midwest, but coming moisture will only barely keep up with evaporative loss. There’s no sign of any lasting pattern of rainfall across the Plains and W Corn Belt through the latter part of June. Vegetation maps show conditions worse than last year across nearly the whole of the Central US, which is part due to a lack of growth in the E Corn Belt and developing drought out west. And crop conditions as of this weekend are a concern, and we mention combined corn production in IL, IN, ND and SD has accounted for 30% of the US total since 2015. GD/EX ratings in these states are down 17-29% from a year ago. Relative to just 30 days ago, our work suggests the US corn crop is getting smaller rather than larger in mid-June.
Record US corn yields have been posted in the last two years, which was an easy forecast based on crop conditions. National GD/EX ratings in 2015 & 2016 started at 72-74% in early June, and in the case of 2016 stayed above 70% GD/EE throughout the season. Conditions don’t correlate overly well with yield in early June, but we want to iterate that conditions become more important in July. If ratings can’t rise above 70% in the next 2-3 weeks a yield at or below trend will become increasingly likely. As such, it’s time to start pondering what the US corn balance sheet could look like using various yield scenarios. Notice in the table, the balance undergoes important changes when using a yield just 3% below trend (165).
Domestic use will be lower amid reduced crop size, but the point is that it’s rather easy to envision US end stocks below 2.0 Bil Bu. Using a yield just 5% below trend, and end stocks fall to 1,733 Mil, which actually is the lowest since 2014.
Importantly, US & world grain markets lack the demand driver needed to turn significantly bullish (South American corn is still very cheap), but the market does look to inch up the price curve if hot/dry weather persists across the Plains & far Western Midwest through the balance of June. Price, of course, correlates strongly with US stocks/use. Assuming a yield of 165, our work indicates a season average cash price of $3.80-3.85, vs. the USDA’s projected 3.40. Cash prices reach $4.00 if yield falls to 161.5. And $4.25-4.40 is projected using any yield below 158-160 Bu/Acre.
A yield above 172 is needed to push Dec ‘17 below $3.50 for any length of time, and we’re in no rush to extend cash sales on breaks. It’s noteworthy that temps have reaching into the low 100s prior to June 15th across the Plains. A 3-10% decline in US ’17 corn yield appears something that producers and end users should consider based on Central US weather. An above trend yield at this point would require nearly perfect weather going forward.