The most fun thing about the grain markets as we move into spring is that instead of trading around crop conditions in other parts of the world, or political issues which potentially never turn out to be real, the market finally starts to trade values based on agronomic conditions in our own back yard. The problem with the spring of 2018 is that the nice weather seems to have forgotten to show up.
Starting in mid-April each year, the USDA begins to report on “Crop Progress” on a weekly basis through the growing season. For the first month or two, the key information contained in these reports is seeding progress. Since corn planting in Texas at the gulf normally begins in February, to post a number like 3 % or 5 % seeded on April 15 isn’t really news because some of that crop has been sown for six weeks. The key period of time where everyone who participates in the grain market as either a buyer or a seller to be watching these reports is from the third week of April to the third week of May when the majority of North America’s corn and soybeans should be planted.
The crops with the highest yield potential are planted into warm, dry soil conditions, come up quickly and never look back. Of particular concern to corn market watchers this spring are unusually cold soil temperatures across the U.S. upper mid-west, and whether or not a week of bright sunshine can resolve that situation.
On March 29, when the USDA released its 2018 Planting Intentions Report, it surprised the market by suggesting that American farmers intended to plant 88 million acres of corn in 2018. This number was nearly 1 million acres smaller than other analysts such as Allendale, and Informa had predicted less than a week earlier. Although at the time there was widespread consensus that the U.S. government’s corn acreage estimate was low, the delays to spring seeding, and growers’ inclination to switch corn acres to soybeans if the planting date gets late, it would appear that the USDA’s estimate of 88 million acres of corn is more likely every day.
There’s an extremely good correlation between corn planting date and corn yield. Although the exact date varies between different growing regions (for most of Ontario it’s around May 15), corn planted after that date struggles to reach its full yield potential. Depending on how much of the corn crop is planted prior to mid-May, the market is going to need to adjust the production potential of the 2018 corn crop by lowering yield. In March, the USDA supply and demand model for 2018 corn was modelled on a predicted average yield of 174 bushels per acre, but if growers are mudding corn into cold, wet fields in the second half of May, the anticipated yield estimate is going to drop.
The best case scenario for U.S. corn production based on the pre-season estimates was 2 million acres less corn planted than 2017 with a 2.6 bu/ac lower yield than it was last year. The slow spring only serves to make a small corn crop even smaller. A smaller corn output was already calculated into the forward contract values for 2018 crop corn, but a smaller crop in precarious condition winds up the spring for a summer weather rally.
Typically, Ontario’s corn acreage does not shift around very much from one crop year to the next. However, the reality of a killer frost is a much greater threat to Canadian corn producers than it is to an American grower in Southern Illinois or Missouri. There’s a day in late May when any corn fields in Ontario that aren’t already sown to corn simply aren’t going to get planted at all, and become soybeans or edible beans for the 2018 crop year. While an acreage shift in Ontario will not in any way impact the Chicago futures market, it does have the potential to compel Ontario end users to bid a little more enthusiastically on their basis.
At press time, it’s too early in the spring seeding period to know how big the delays we might experience in planting the 2018 corn crop, but it’s the best time to advise people to watch the Monday crop progress reports as they are released. At the start of the fourth week of April, American farmers only had half as much of their corn planted as would be typical for that date. These next few weeks are critical in setting the stage for the 2018/2019 crop year. If planting can catch up, 2018 is still a small corn crop. If planting progress remains slow, price will need to move higher in order to ration demand.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.