Inside the Market

Back in February at USDA's Agricultural Outlook Forum, the message for new-crop corn was simple: Prices are headed lower. USDA opened the first day of its gathering in Arlington, Virginia, with an estimate for a 15.085-billion-bushel (bb) crop, based on a yield of 181.5 bushels per acre. It resulted in 1.887 bb of ending corn stocks in 2023-24 and an average farm price estimate of $5.60 a bushel. December corn prices at $5.92 the day before the event posted five consecutive lower closes, starting a bearish slump that would reach $4.99 by May 17.

By the time the May 12 WASDE report came out, USDA's ending stocks estimate for corn had grown to 2.222 bb, and the average farm price was down to $4.80. Even though there was little bullish news to report, December corn did not stay below $5 for long. Farmers were talking about a lack of moisture for their newly planted crops, but traders were having trouble finding hard evidence. On June 1, the U.S. Drought Monitor showed a massive expansion of abnormally dry areas across the central and eastern Midwest, which got traders' attention. Speculators that were net short over 62,000 contracts as of May 23 started to reel in their positions, and December corn prices jumped from $4.99 on May 17 to $6.28 3/4 on June 21.

By mid-June, the U.S. Drought Monitor looked even worse than conditions in 2012, the most recent year of widespread drought. Both the National Oceanic and Atmospheric Administration (NOAA) and DTN expected increased chances for rain in the months of July and August, but those distant forecasts weren't helping crops stressed in June.

By the last week of June, rain started to appear across the central Corn Belt, and the extended forecasts started to look more promising. Specs in corn were caught on the wrong side of the market again, net long over 118,000 contracts on June 20 and were now scrambling to get out. Corn prices fell sharply.

Had that been the end of the surprises, we'd probably be looking at a 14.7-bb crop and a possible return to 2 bb of ending corn stocks in 2023-24. But, it wasn't. On June 30, USDA woke up bears again with a planting estimate of 94.1 million acres, more than 2 million more than expected and the largest corn planting since 2013. In a quick six weeks, the popular outlook for corn prices went from bearish to bullish and back to bearish again -- all before the Fourth of July.

This year's early drought will knock down corn yield expectations, but USDA's higher planting estimate makes it difficult for corn prices to rally anytime soon. Weather is still in charge, and the surprises may not be over. As things currently stand in early July, December corn prices are knocking on the door of new lows in 2023 and likely have further to fall. At a time when a new farm bill is getting much attention, the value of crop insurance is poised to prove its worth, once again.

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

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