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Corn Creates Paradigm Shift


Trade, Other Concerns Ease Somewhat With Corn Price Rally

The last few weeks of price moves have changed the market outlook and put more spring in the step of Iowa farmers who have gotten their crops in.

Until recently, trade was the topic du jour for farmers worried about low prices and the market for their crops. The wet spring, floods and prospects for record prevented planting acres have changed the tenor of conversations, said Craig Hill, president of the Iowa Farm Bureau Federation.

“The outlook for the producers was about trade, the tariff issue, and all of these question marks were out there,” Hill said. “With the spring we’ve had, there has been a complete paradigm shift.”

On Friday, Hill was watching the July corn contract, which closed at $4.53 Friday, and the December contract. Hill thinks the markets will remain uncertain over production and how the wet spring will affect yield.

“I think the market has a ways to go up yet, because I think we have destroyed a lot of yield,” Hill said. “The farmer in me, you know it seems like in wet years, you destroy your root system and lose nitrogen. It can have a more devastating effect than in dry years.”

DTN’s National Corn Index settled at $4.20 on Thursday, the highest level in five years. It may not have peaked, either, said DTN Lead Analyst Todd Hultman. There are a lot of doubts about whether USDA went low enough with its estimate for 1.675 billion bushels of ending stocks for the 2019-20 corn crop.

“My best guess is corn price is going to keep going higher because we haven’t seen credible ending stock estimates for corn yet,” Hultman said.

Hultman said USDA likely would continue moving down to a 1.4 billion- to 1.5 billion-bushel ending stocks estimate. A breaking point that could drive even more market reaction would be stocks under 1.2 billion bushels. “That’s kind of a critical level for prices,” Hultman said.

USDA’s price outlook released in February showed a decade of low prices going forward. “Net farm income was going to be dismal,” Hill pointed out. “So that was the paradigm we were all looking at. Now the paradigm is: How high will corn go?” Hill said. “Will it be $5? Will it be $6?”

Hill added, “It’s fun to see prices go up. It puts a little lift in your step.”

Farmers faced with prevented planting options cannot capture the opportunities of those higher prices with their insurance policies — unless USDA rules they can do so. On Monday, USDA issued a question-and-answer statement on trade assistance and disaster aid. On the question of the “harvest price option” for prevented planting, USDA stated, “USDA is currently exploring legal flexibility to provide assistance that better utilizes the harvest price in conjunction with revenue and prevent planting policies.”

PRODUCTION WORRIES

Kelly Nieuwenhuis, a member of the Iowa Corn Board who farms near Primghar, Iowa, is a little more nervous about his potential production.

“We have corn we planted June 4 and 5 that just emerged. We know the hope for that is going to be marginal,” Nieuwenhuis said.

After that crop went in, Nieuwenhuis said, a quick spike in heat last week baked the topsoil. He was thankful for some showers this week that were needed for the ground despite the water deeper in the soil.

Nieuwenhuis likes the direction prices are headed, but his problems planting this spring remind him of 1993 — the great flood year in Iowa — which led to Nieuwenhuis’ worst production years for both his corn and soybeans. Late-planted crops that year were hit with a mid-September frost, and yields were dismal, he said.

“This year is matching up to that now,” he said.

Like Nieuwenhuis, Hill also made the comparison to 1993 and the poor production that year. “These prairie soils don’t perform really well with too much water.”

South of Nieuwenhuis, Nathan Anderson, who farms with his father just outside of Cherokee, Iowa, likes how his corn crop looks so far. A board member for Practical Farmers of Iowa, Anderson uses cover crops and grazes cattle to help his soil health. Despite some struggles this season, Anderson said he got some corn planted early and experienced constant hit-and-miss rains this spring.

“We were able to get a couple of days here and there to get stuff done,” he said. “We planted a couple of days in the dark, but we were able to get an early start. We were later than normal by a little bit, but not too bad given the circumstances.”

Taking advantage of the weather to do some fieldwork Thursday, Anderson said he didn’t have time to frequently check prices, but he knows markets are moving upward.

“I probably wasn’t watching it as close as I should have, but it definitely catches your attention when the market is moving like this,” Anderson said. “It’s definitely a positive for those of us who were able to get a crop into the ground. It’s nice to have something the market wants.”

For consumers of corn, such as pork producers, the shift has moved from buying corn and soybeans hand-to-mouth to now looking to secure supplies before the prices get out of hand, Hill said.

TENSIONS SNAP

The rise in grain prices has also eased tensions in rural America over President Donald Trump’s trade agenda. Iowa farmers, in general, have supported the president. But Hill said the tensions have become like a rubber band being pulled back more and more with every economic hit to producers.

“I thought it could break, but now I think much of that tension has been relieved,” Hill said. “And I was one — it was pretty hard on me to think we were going to fight everybody in the world with renegotiation on trade to disrupt all of our relationships.”

Favorable prices, along with perhaps more long-term market support following the president’s year-round E15 sales decision, have quickly reduced some of the tension. “I think those favorability ratings are going up pretty fast,” Hill said.

Like many in the ethanol industry, Nieuwenhuis, a board member for a local ethanol plant, was pleased with the move to get E15 approved for year-round use. At the same time, Nieuwenhuis sees the president’s action being undercut by EPA’s aggressive approval of small-refinery exemptions, or hardship waivers, that have reduced ethanol use by 2.6 billion gallons over the past two years.

“We appreciate the E15 rule, but the hardship waivers are doing a lot of damage,” he said. “Those gallons need to be reallocated.”

The small-refinery exemptions may be the biggest issue concerning Nieuwenhuis, but he also wants to see the trade dispute with China resolved. Nieuwenhuis said he thinks other farmers agree China has been taking advantage of trade rules for too long. At the same time, farmers are becoming divided over the trade dispute.

“We don’t want to see our president fail,” he said. “I don’t know anybody who would want to see the president fail. In agriculture, the last thing we need to do is be divided.”

Near Rippey, Iowa, David Weaver said he is a little more concerned about political dialogue. Weaver, a Democratic state legislature candidate who lost last year, said he sees more division already in rural America because of party politics. “I’m concerned about how we treat each other. The discourse is so awful.”

Weaver also is worried about the trade battles and where soybeans are going to be sold, which is why only 25% of his acres this year went to beans.

“You kick your best customer in the shin, so if they have a chance, they are going to go somewhere else,” Weaver said. “We’re not the only ones who can grow soybeans.”

Weaver, though, also said he felt pretty lucky about his crops overall. His area in central Iowa largely avoided a lot of rains that slowed planting for most farmers. Weaver was able to get planting started in early April on the 1,800 acres he farms with his father. Weaver said planting got done in two- to three-day windows between rains.

“We’re in a pretty good spot,” Weaver said. “I think the crops in this area look pretty good.” Noting the price rally, Weaver added, “It’s a good time to be a farmer — and have your crops in.”

Source: Chris Clayton, DTN

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