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Cold Night Ahead and Facts Regarding U.S. Corn Exports to China

Update for May 28th, 2021

Bloomberg News released a story Wednesday that claimed the Chinese are considering the imminent cancellation of some of their U.S. corn purchases. This has been a widespread concern for several months so the story quickly spread across the marketplace. The report said that China believes their purchases have escalated out-of-control and Chinese customs were considering the restriction of imports into free trade zones. Once additional facts surfaced it became evident that the number of cancellations were not nearly enough to be considered a game changer. China officially has 23 MMT of U.S. cold crop corn on the books and a large portion of this total has already been shipped. Bloomberg’s report accounts for about 4% of current old crop U.S. corn sales to China and around 1.5% of their total from all destinations.

Thursday corn futures rebounded by more than 6%. Information from Reuters indicates the rebound in corn prices was due to technical buying, short covering and strong feed demand despite the current favorable 6 to 10 forecast. Brian Hoops, president of U.S. brokerage Midwest Market Solutions said, “We’re seeing some speculative buying coming into the market. The weather really doesn’t justify this rally in new-crop corn and soybeans, but the demand is still there.” Thursday morning the USDA confirmed sales of 5.6 million tons of new-crop corn sales to China last week and no large-scale cancellations of old-crop corn purchases like Bloomberg News reported Wednesday.

The recent fall in commodity prices startled some producers that had been lulled into complacency by the strong bull market that began its run last August. That’s when nearby corn and soybean futures sank to $3.07 & 8.70 per bushel. Since that low point 9 months ago we have watched prices rally to price levels not seen since 2012.

Al Kluis of Kluis Commodity Advisors told Successful Farming that over the past 40 plus years he has watched more than 30 bull and bear markets and comparatively this particular bull run has been the most exciting. Kluis explained some the top reasons we get these types of markets:

  • #1 is Demand. During this type of market, we tend to see strong to positive basis bids that are willing to pay a premium to nearby contracts because cash buyers want your grain now not later.

  • #2 is Fear. Fear regarding supply chain issues. Fear of an infrastructure crisis. Fear of weather issues like the hot & dry weather we experienced during the summer of 2012.

The summer weather concerns of 2012 drove prices higher into August. The rally ended when ethanol producers shut down or slowed production and exports slowed due to cheaper prices from our global export competitors. The current bull rally began last August, a result of growing global demand that was accelerated by the significant drought stressing corn production areas in key growing regions of Brazil. This has resulted in yield outlooks for the Safrinha (2nd crop) to fall off dramatically. The latest yield estimates predict a reduction of more than 800 million bushels this season.

Kluis warns producers that while this has been an incredible bull market, it will be followed by a bear market. It isn’t a matter of if but instead it’s a question of when. “My long-term chart studies projected a major 68-month low for corn in August 2016. Those same charts now project another major low for corn between July 2022 and October 2022. For soybeans, the April 2020 low suggests another major low for soybeans between August 2023 and October 2023.” He has 3 suggestions for marketing your 2021 and 2022 crop:

  • #1 During 2021 storing corn and soybeans has been profitable due to strong-positive basis levels and soaring cash bids. This likely won’t be the situation next spring and summer so lock in your basis sometime this November or December.

  • #2 Brazil crops have had major production issues the past two years. This isn’t likely to be the case a 3rd year in a row.

  • #3 A lot of farmers that sold too much too early in 2021, (when prices were good but low in comparison current prices) are upset with the money they left on the table and will hang on too long in 2022…. Don’t be one of those producers.

The Soil Moisture map below shows data obtained from NASA. Notice the millions of acres of farmland across North Dakota that has extremely low soil moisture available this spring. This lack of moisture stretches across the U.S. Canadian border as well as into South Dakota, the southern 2/3rds of Minnesota, most of Wisconsin and Michigan and a large portion of Iowa.

A North Dakota climatologist Adnan Akyuz warns producers on the eastern Prairies to not underestimate the severity of this year’s dry conditions. Akyuz said, “If I was looking at the soil moisture for 100 years and ranked it from driest to wettest, the current conditions right now would lie between one and two (for driest).”

As of mid-May 85%, of the entire state of North Dakota was in the midst of an extreme drought. “The dryness is unprecedented right now…It is the driest nine-month period on record since 1895.” This is not a situation that can be remedied overnight, an inch of rainfall is not enough to change a drought classification. While that inch of rainfall will add moisture to the top layer of soil and will help to germinate crops in the drought affected regions, the subsoil moisture remains problematic. To get the crop through this growing season it will require timely rains about every 10 days.

WxRisk now expects the arrival of a heat ridge in July that will set up over the Rockies and through the Western Corn Belt. WxRisk meteorologist David Tolleris explains that the Midwest weather pattern started to change in late April which pointed to the development of drier conditions but the short-term outlook for June shows a wetter pattern.

On June 1st a cold front will move across the Midwest bringing rainfall to the eastern Corn Belt and Southeastern states through June 4th. A large system with heavy rainfall potential is expected to arrive in the Western Corn Belt June 7-8th. Tolleris says, “Yes, it’s an active pattern and it is going to stay an active pattern. It looks like most of June is going to stay wet. The extended models are showing above-normal rainfall for all of the Plains, Midwest, Southeast and Delta states.” Unfortunately, growing degree units will be minimal during this same time, “With so much rain, there is no real heat included in this forecast. And the cold fronts that are bringing these rains make it difficult to get a sustained hot pattern.”

This is caused by a jet stream that is being created by the cold water off the U.S. West Coast and into California. From there the jet stream is ejecting systems into the Rockies and into the Plains where some of the pattern’s head north into Canada while others continue on eastward through the Midwest.

The weather pattern for July and August looks much different though. Current forecasts show that the Pacific Ocean waters off the coast of California will begin to warm which will alter the current pattern. Tolleris explained, “So the models are showing a heat ridge forming in the Rockies and Southwestern states. That’s also where the drought is very strong today, according to the Drought Monitor map.” “The heat ridge will expand from the Rockies during the summer months through August into the Delta, Plains, and the western Corn Belt. This will cause these regions to get much hotter and drier.” The eastern Corn Belt is forecast to be colder and wetter during this period.

The forecast for the Upper Midwest over Memorial Day weekend looks more similar to that seen during early spring. Temperature departures from normal are expected to be about 30 degrees below normal. Some northern areas may see daytime highs in the mid-40’s – temps more typically found in mid-March.

In fact, the GFS is showing lows Saturday morning in some parts of NE Iowa could touch 32 degrees. Many northern areas will fall in to the mid to low 30’s which could certainly produce some scattered frost.

The NAM weather model shown below is especially concerning. This model shows even cooler temps than the GFS with widespread lows of 30-32 degrees expected. The valleys of SW Wisconsin are particularly in danger tonight and into tomorrow as temps in these areas are predicted to produce a killing hard freeze with temps dipping into the upper teens and mid-20’s.

Our office will be closed on Monday May 31st in observance of Memorial Day. And to honor all that have served to protect America’s Freedom

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