Contrary to the average trade pre-report opinion, USDA raised their U.S. average yield projection for corn in the Sept. 12 NASS Crop Production report. Instead of paring it back, they raised it another 0.5 bushels per acre (bpa) to 183.6 bpa. The bearish market impact was muted by the 55-million-bushel reduction in old-crop carryover, but the look still wasn't bullish. Can U.S. (and world) corn prices recover from here? What might it take to do so from a fundamental standpoint?
Taking the big-picture view, the world existing and predicted ending stocks are still too high to get prices excited. They were 302.82 million metric tons (mmt) in 2022-23, 309.63 mmt in 2023-24 (including Thursday's upward revision from 308.52 mmt), and now seen at 308.35 mmt for 2024-25 by the World Agricultural Outlook Board. They were a tighter 295.708 mmt in 2020-21 ahead of the 2022 corn rally. Of interest, the projected world corn stocks-to-use ratio even with Thursday's higher U.S. yield is 25.29% for 2025 versus 25.68% in 2021.
The various NASS and WASDE outlooks do contain some seeds for possible price improvement, other than the obvious one of looking past a harvest low that frequently occurs in September or October. First, the world numbers went in the right direction this month. Despite a 1.1-mmt bump up in the old-crop carryover/beginning stocks, projected 2024-25 ending stocks were cut 1.8 mmt from last month. World production was reduced 1.3 mmt (in the EU and Russia). Low prices are doing what they are supposed to do, which is increase consumption. Projected annual use was hiked 1.7 mmt on the industrial use side rather than the feed use line of the balance sheet.
USDA was very focused (in the Ag Secretary's briefing) on southeastern Europe. They showed August temps running 3 to 5 degrees above average, with 60-day rainfall totals at less than 25% of normal for Hungary, Serbia and eastern Romania, to single out a few locales. As an aside, Chinese production is still seen as record large despite challenges with both flooding and dryness. This could be attributed to the increased adoption of GMO corn varieties and trend yield improvement overall.
The U.S. yield increase appears justified by the current data. While declining seasonally, the percentage of the crop rated good to excellent is still the highest since 2018 or earlier for this date. Trend yield goes up about 1.9 bushels per year due to genetics and improved practices. Our Brugler500 index of 364 (includes all five ratings levels and adjusts for trend yield) suggests a final yield of 185.9 bpa. That is still plus/minus 10 bushels this early in the fall, but a good indicator of trend. USDA increased projected yields from last month for North Dakota, South Dakota, Nebraska, Kansas, Texas, Iowa, Louisiana, Mississippi, Indiana, Michigan, Pennsylvania and New York. There are 10 states with projected record average yields, including acreage heavyweights Illinois, Iowa and Nebraska.
What might drag the yield down and hurt final U.S. production and tighten stocks? One obvious candidate is kernel fill and test weight. The ears per acre in the 10 objective yield states are well below last year, as well as the September 2021 figures. That puts more emphasis on grain weight per ear. Corn Belt temps were below average for the 30 days ending Sept. 7 but are expected to be above normal for most of the Corn Belt over the next 30 days. While we are still in the neutral or "La Nada" weather pattern, odds are 65% for a transition to La Nina during the Sep-Nov quarter. The sea surface temperatures are already going below average, and we're starting to see some of the expected fall dry pockets. That's the main argument for lower test weight -- i.e., heat and moisture stress prior to black layer.
What are the bear arguments globally, besides the overall high level of ending stocks and the tendency for the harvest low to be in early October rather than now? One might be advanced U.S. crop maturity, with 29% of the U.S. crop mature as of Sunday, compared to the five-year average of 24%. If it's mature (and 5% is already harvested), it won't be affected much by any adverse fall weather. Another factor might be the poor economic conditions in China impinging on meat demand there and thus potentially the need for feed grains.
The managed money spec funds were also still net short 176,211 contracts in the week ending Sept. 3. We'll get an update on Friday night. They have been selling into rallies to defend their positions. Commercials were starting to get more net bearish due to early harvest activity. Acceleration of harvest could provide the liquidity for the shorts to exit. Net fund position is correlated with weekly price changes, and short covering would tend to be reflected in higher weekly prices. The bear argument might be that inflation appears to be slowing. Commodity prices in general do better with a weak stock market, a weak dollar and higher inflation expectations, less well when the reverse is true. Commodities can still rally in such an environment, but it takes more of a fundamental push to get them going.
Finally, we don't want to overlook South America. First-crop corn planting is underway in Brazil as you read this. Current prices are low enough to discourage acreage expansion there, but USDA still has a 5-mmt increase for the 2024-25 marketing year due to assumed better yields across the three cropping seasons. Argentine producers are thought to be reducing acreage due to insect and disease problems in 2023-24, but WASDE currently expects their production to exceed last year by 1 mmt at 51 mmt.
My point? Small rallies are OK here, but a big rally in September or October will tend to attract more production south of the equator, which U.S. producers will not welcome!
Alan Brugler can be reached at alanb@agmarketpro.com
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