Although the grain industry has spent a lot of time over the final months of 2020 discussing export demand for soybeans as a result of weather issues in South America and strong Asian demand, those same market forces are also driving corn values. While it’s great to watch the run in oilseeds, corn is the largest-volume grain crop produced in our marketplace, so it’s really important to watch how this plays out in a really important market.
Last summer, when the USDA started to refine its estimates about the corn supply and demand in the 2020 crop marketing year, it projected that the United States would export 67.331 million metric tonnes of corn from September 1, 2020 to August 31, 2021. By December 17, the U.S. had already reached 42.230 million metric tonnes, a whopping 62 % of the year’s total expectation in just 15 weeks.
Equally impressive, the 42-million tonnes in corn sales is almost 2.5 times bigger than the 17.8 million tonnes of U.S. corn export sales over the same period in 2019. It’s all a really encouraging message for corn growers because not only are prices considerably higher than in previous winters but worldwide demand is happy to buy at these improved prices.
As a point of clarification: Grain exports are reported based on two different metrics: Export “sales” and export “inspections.” The USDA releases both reports on a weekly basis. “Sales” are the volume of sale contracts written, and “inspections” is a measurement of the actual tonnage of grain loaded and recorded on customs clearance documents. Essentially, “inspections” represents the executed business, and “sales” is a measurement of pending business. As observers of the corn market who are utilizing export data as a means to anticipate price moves, “sales” are the more important indicator. The key criteria which slows the pace of sales is the buyer’s reluctance to agree to a price. When we see sales volumes drop it suggests that there’s resistance to the price. The volume of sales made in an individual week says a lot about whether there’s demand at the current price.
There are a few variables at play which make it important for corn producers to stay clearly focused on monitoring corn export sales as a directional indicator on prices going forward. The first is that “it’s dry until it rains.” Although Ontario farmers have seen substantially increased prices due to a drought in South America, good rains in January and February could still do a lot of good for Argentine corn production. It takes months of dry weather to create a drought, but only days of rain to end one. The second factor to watch is political. Brazil and China have been negotiating a framework agreement for corn exports from Brazil to China. The two nations already do an enormous volume of business on soybeans but this deal pertains primarily to phytosanitary restrictions which have complicated corn movement from Brazil to China. Since the grain companies in both nations already have solid trading relationships, if they can reduce or eliminate some of the regulatory restrictions, it could put pressure on U.S. corn as China becomes more active in the Brazilian corn market.
One of the key market drivers which we are going to watch unfold in the weeks ahead is the seeding intentions for corn and soybeans in the spring of 2021. Through November and December, the fact that soybean prices are at their highest levels since 2014 would lead analysts to believe that North American farmers are inclined to plant more soybeans this coming spring. But with corn demand so strong, it’s likely that we see something of an auction in new crop prices as both corn and soybean markets try to ensure a big supply for 2021–2022. Personally, I’m optimistic that in a marketplace where corn export sales are more than double last year’s volume and soybean export sales are even better, the market has a significant incentive to pay farmers enough to increase seeded acres of corn and soybeans in the spring of 2021. Since the total area of cropland can’t increase, these two crop markets are going to have to bid against one another in order to increase next year’s supply.
Google makes it really easy for corn producers to monitor the pace of export sales. For farmers with either old crop corn in storage, or those looking for an opportunity to add to new crop sales, spending a few minutes to review the weekly export sales reports will pay you more dollars per minute of effort than any other activity on the farm this winter. As long as sales volumes exceed the historical weekly averages, the price trajectory that we’re on can maintain its direction. Prices will remain solid as long as we’ve got active buyers. If we find a point where the buyers start to disappear, then it’s time to make some marketing decisions for your farm.
Steve Kell operates a crop farm in Simcoe County and is a former grain merchant for Parrish and Heimbecker Ltd.
