Kub's Den

If warm weather had cooperated, U.S. corn farmers had a motivation to plant early this spring. Well, they always have some motivation to plant early, even if it's just to make their neighbors twitch with envy. But in 2021, it was more than that -- it was actual economic motivation.

Consider how the futures spreads are currently suggesting someone who can sell new-crop corn in September will receive 18 cents more per bushel for their September crop than someone who won't have any new-crop corn ready to sell until October. The September futures contract is currently "inverted" over the December contract, and this is relatively unusual. In most years, when normal abundance carries over from one crop year to the next, the December contract has a "carry" spread over the September contract. But in the years when the countryside is expected to feel short of corn during the late summer, there's extra urgency to bring something to market in the September timeframe.

Here's what those spreads have looked like in past years:

Date Spread	September Futures	December Futures	September-to-December Spread
4/15/2021	$5.31	$5.12	-$0.18
4/15/2020	$3.33	$3.43	$0.10
4/15/2019	$3.80	$3.91	$0.11
4/16/2018	$3.98	$4.07	$0.09
4/17/2017	$3.80	$3.90	$0.10
4/15/2016	$3.82	$3.88	$0.06
4/15/2015	$3.91	$4.01	$0.10
4/15/2014	$5.06	$5.03	-$0.03
4/15/2013	$5.57	$5.32	-$0.25
4/16/2012	$5.41	$5.26	-$0.15

These mid-April snapshots of the September-to-December futures spread are important because this is the critical cutoff for planting that determines whether a farmer will be harvesting dry corn in September or not. Individual fields will vary, of course, depending on the genetics of the seed planted (estimated maturity) and how heat units accumulate through the summer, but assume it takes about five months to get a cornfield from planting to harvesting. If 60% of Texas' intended 2.1 million acres of corn have been planted as of the latest USDA Crop Progress report date on April 18, 2021, (right in line with the state's average pace), then presumably about 60% of the state's acres will be ready for harvest by mid-September. History bears out this pattern: The five-year average "corn harvested" progress for Texas as of Sept. 13, 2021, will be just slightly above 60%.

However, 60% of Texas is still a relatively small portion of the total U.S. crop. Other states that have a serious chunk of their corn already planted include North Carolina (40%), Kentucky (26%) and Tennessee (26%). Among the big Corn Belt powerhouses, Kansas has 15% of its corn planted, which is actually behind its five-year average pace for this time of year, and southern Illinois has been rushing in 12% of that state's intended corn acreage already -- 4 percentage points ahead of its average pace.

It appears that the economic spirit was willing, but the physical soil was just unfit during this cool spring. With Monday night's (April 19) freeze warning spreading across a broad swath of the continental United States, as far south as central Texas and far enough east to cover the entirety of Indiana and parts of Ohio, we shouldn't be surprised that the nation's farmers were conservative enough not to risk unusually early planting. No one likes to put expensive seed into the ground before the seasonal threat of frost has passed. DTN's map of 4-inch morning soil temperature as of Tuesday, April 20, showed Iowa's soil still below 40 degrees Fahrenheit, and agronomists suggest waiting until the soil has warmed to 50 degrees before planting corn. Even Oklahoma, Missouri and the southern tip of Illinois have soil that still hasn't really hit ideal temperatures for corn seedlings.

How frustrating when that extra 18 cents per bushel is on the line! But is it really? The September futures contract will expire on Sept. 15, 2021, and the first-notice day for potential warehouse deliveries against the expiring contract will be Aug. 31, which means most grain elevators will likely be switching over their spot basis bids against the December futures contract near the end of August. Anticipating volatility in that September-to-December calendar spread, they may make that switch even earlier than usual. So, only the corn that was planted super early -- and that survives this week's freeze and maybe gets harvested a little early and a little wet -- will really be eligible to be delivered against the September futures contract. Whatever economic motivation may have once been offered, as of this week, it's no longer a viable strategy -- if it ever was.

The futures spreads are one thing, but in the reality of the cash market, elevators in these Southern regions don't seem to be messing around with the subtleties between last-half August and first-half September prices. I checked the cash bids of one co-op in southern Illinois, and they're setting a price for June-delivered corn ($5.93 or 32 cents over the July contract) and then their next bid is for "harvest 2021" corn ($5.29 or 4 cents under the December contract), whenever harvest might be. I found another elevator slightly north of there that is posting a September bid higher than its October bid, but that might be short-lived. At the elevators I checked in southern Kansas, they're already bidding September-delivered corn against the December futures contract (anywhere from 10 cents over to 10 cents under) and setting their new-crop bids the same no matter whether you're delivering grain in September, October or November.

There could be some opportunity for someone with early harvested September corn to truck that corn north and deliver to an ethanol plant in Nebraska, for instance, where the inverted futures spreads do carry over into the cash market -- an August/September cash bid of 30 cents under the September futures contract is 14 cents better than an October/November cash bid of 25 cents under the December futures contract. But I suppose that ultimately comes down to logistics and how the scarcity and urgency continue to shape the cash market through the summer when ethanol plants and livestock feeders are expecting to feel the most economic pain from inflated grain prices. Physical reality and logistics, after all, are what already stymied some of the best-laid plans to get this 2021 growing season off to an early start.

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at masteringthegrainmarkets@gmail.com or on Twitter @elainekub.

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