Inside the Market

Please excuse me if I'm still shaking my head about how quickly U.S. grain markets have gone from surplus to tight supply conditions.

In the case of corn, it was less than one year ago USDA put out a U.S. ending corn stocks estimate of 3.32 billion bushels (bb) for 2020-21 in the May WASDE report, a heavy surplus that historically correlates to cash corn prices in the mid-$2 range.

ENDING STOCKS CHANGE

More recently, USDA's March WASDE report is now looking at 1.502 bb of ending stocks, less than half the initial estimate. Between you and me, there are plenty of market clues that suggest actual corn supplies will be less by the time we get to the end of August.

USDA's average farm price estimate for 2020-21 is $4.30 a bushel, well below the $5.20 a bushel DTN national index of cash corn prices is showing at the time of this writing. In early March, when the March contract was in delivery, deliveries were slow to arrive, and the March contract traded 16 cents above the May contract. Rich premiums like that are often bullish signs of eager demand among commercials and speak volumes about how bullish conditions have become.

DTN's cash index has also been trading roughly 13 cents below the nearby futures contract, a much narrower basis than the 30-cent average normally seen this time of year. That 13-cent difference or cash basis is an excellent clue of how strong demand is for cash corn and ranks among the most bullish scenarios we've seen in several years.

DEMAND FROM CHINA

Unexpectedly large export demand from China in 2020-21 has been behind much of corn's bullish surprise, and many suspect there will be more purchases to come. It is difficult to know exactly what is happening with the world's largest feed grain customer, but we can see May corn prices on China's Dalian exchange trading at expensive levels, recently translated to $10.92 a bushel.

The U.S. has been the main source for those importing corn since late-summer 2020 as South American supplies ran down quickly. Argentina's corn harvest is just getting underway, and Brazil's second corn crop probably won't be available until late July after suffering planting delays earlier in the season. USDA estimates 34 million metric tons (mmt) of corn exports for Argentina and 39 mmt for Brazil, enough to eventually slow down U.S. corn sales until December.

Here in April, the U.S. will be planting its own corn crop soon, and price incentives are high to get going early. The key for corn prices moving forward in 2021 will be China's demand, and we can't forget about the weather. As usual, there is plenty of uncertainty at the start of another new season, but the early signs of strong demand and a narrow basis bode well for higher-than-normal corn prices in 2021.

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> Read Todd's blog at about.dtnpf.com/markets.

> You may email Todd at todd.hultman@dtn.com, or call
402-255-8489.

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