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Corn Market Gets Hit With Double Whammy

USDA deals blow to corn price momentum.

Corn producers were hit with a double whammy when USDA’s much-anticipated quarterly Grain Stocks and Acreage reports were released on March 29.

Corn futures plummeted more than 17¢. Both the acreage and stocks numbers were above the average estimate, and both exceeded the highest prereport figures. The acreage number may change as spring unfolds. The stocks figure however, is a head-scratcher, particularly from a feed usage perspective.
 
Feed usage for the first quarter of 2019 was estimated at 1.189 billion bushels. That’s 314 million bushels less than the first quarter of 2018 at 1.503 billion bushels. This reduction of well over 300 million bushels was a surprise, as total livestock units exceed year-ago levels. Along with that, February was a harsh weather month for cattle producers who required additional feed. The feed usage calculation played a big role in explaining a surprising high quarterly stocks figure of 8.605 billion bushels, compared with the pre-report estimate of 8.336 billion. While still lower than last year’s 8.892 billion, it was an increase compared with expectations, and that affected prices.
 
Perhaps just as surprising as the stocks number was the acreage estimate. USDA’s estimate for 2019 is 92.792 million. That’s 1.6 million above the average prereport estimate of 91.184. (Prereport estimates ranged between 90 and 92.2 million bushels, with an average estimate of 91.184.)
 
Planted acres in 2018 were reported at 89.129 million. Monday’s USDA estimate was 92.8 million. An increase in corn acres from a year ago was expected, though 92.8 million is likely too high.
 
This year’s price for insurance purposes is $4.00; last year it was $3.96 (determined by the average of December corn futures during February). A price of $4.00 is likely a good pricing opportunity for some producers.

Some people believe that prices will likely move higher beyond February and offer even better opportunities. Unfortunately, since February, December corn futures dropped under $3.90.

The ratio of November soybean futures divided by December corn futures is near 2.39. Considering fall tillage problems and increases in the price of corn inputs (namely fertilizer), it may be that corn acres will decline.
 
A key advantage for end users is that they can now buy corn that could be at or near the lowest price of the year. Good livestock prices, along with expectations that a tariff resolution is coming soon, could spur a price recovery. Speculative interest indicates managed money near record short. Should they reverse their position and go long in anticipation of summer weather, a price recovery may lie ahead.
 
In the end, anything can happen. Keep your eyes on your end goal, and prepare yourself for any scenario.
 
If you have questions or comments, contact Top Farmer at 1-800-334-9779, ext 129.
 
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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