Although most Ontario corn producers go into the fall with at least a portion of their crop already forward sold, as harvest progresses and growers have a better sense of exactly how big their total production is going to be, there are always a lot more selling decisions which need to be made, and a little more strategizing with regards to what market signals might trigger those sales.
The October USDA report did something of a bait and switch for corn market watchers.
First, they reduced the size of the expected 2018 production by lowering yields and holding the line on harvested acres. Over the month of September, crop analysts within the United States Department of Agriculture lowered their yield estimates for the 2018 corn crop from 181.3 bu/ac to 180.7 bu/ac. Six tenths of a bushel might not seem like much, but on nearly 82 million acres of corn, it reduces this year’s total corn production by 49 million bushels. While certainly not a massive downward adjustment, anything which reduces corn supply is welcome news to growers who need to market their crop.
However, under the heading of “every silver lining has a cloud attached to it,” the same report also increased their estimate of 2017 crop carry over stocks being brought forward by 24 million bushels. In effect, that wiped away half of what the market stood to gain from the reduction in yield estimates.
The good news is that the American government’s analysts anticipate that the United States will export about 50 million bushels more corn from the 2018 crop than they did one year earlier. Really the only adjustment is demand for U.S. corn over the past two crop years, and projected increases in exports and feed usage, with ethanol, commercial, and food use are essentially unchanged.
Ontario’s corn demand growth is actually a little more robust than our neighbours to the south. Like the Americans, Ontario’s livestock numbers are up, which implies stronger feed demand and the export book out of the Great Lakes terminals is larger than anything we’ve ever seen through the fall shipping. Ontario also has an increase in ethanol demand, which the Americans do not.
The greatest advantage for corn growers in a marketplace where experts are forecasting growth in exports and feed, is that those are the two easiest things for farmers to track. If the projected surge in corn demand was to come from food use, it’s really difficult for corn growers to estimate how much sweetener Ingredion is shipping, or how many Tostitos’ Frito-Lay is bagging off. It would take a pretty in-depth study to figure out how much corn Suncor is selling as ethanol through their pumps at Sunoco and Petro-Canada stations. Exports, however, are really easy to track.
Every week, the United States Department of Agriculture releases two reports which pertain to the speed at which Americans are exporting corn. The first is “export sales” which provides indications of the volume of grain sold to other countries. The second is “export inspections,” which is built from inspection paperwork as export vessels are loading. Essentially, there’s a publicly available weekly update on how much overseas business is getting booked, and another one on how fast corn is actually evacuating the market and heading to those foreign sales.
If you’re trying to plan corn marketing for the period of time between now and when the 2019 crop potential takes over as the market’s principal driving force, it’s as simple as monitoring the weekly export sales and weekly export inspections and determining if the market is moving corn out fast enough to have disposed of 2.475 billion bushels over the course of the crop year. If shipping were to be a linear pattern all year, it would work out to 47.5 million bushels per week. But since we tend to ship heavier under harvest pressure, and slower when the southern hemisphere producers are in their harvest, from now through the start of 2019, corn market watchers should be looking for weekly sales in excess of 52 to 55 million bushels per week or else there will be downward pressure on prices.
Simply visualize a balance beam scale. The heavier the export sales number, the more it will push up price. If weekly exports are light, the weight of a 16.967-billion bushel supply will pull prices back down. The good news is that it’s intuitively logical, rational, and easy to track: Three things which markets often are not.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.
