The volume of grains used in domestic demand doesn’t change very much when prices move. If you have a local flour mill, you need to buy wheat. If you have a barn full of pigs, you need to buy corn. However, to be able to make export sales in a global marketplace, you have to be priced right, or those international buyers can turn to another part of the world in order to source their supply. Typically, if North American export sales are slow, our prices are too high, and you can anticipate them coming under pressure, and if the pace of export sales is high, it suggests that we are well priced, and the buying should enable a firming of values.
American corn export sales for the 2023 crop are really impressive in comparison to last year’s figures. By the end of October, (two months into the 2023 crop marketing year), U.S. corn export sales were 119 % of the same period in 2022.
If you got a 19 % raise or if your kids got 19 % higher marks in school, most people would be genuinely impressed by the improvement. It is not a small accomplishment. However the corn market has struggled to make a lot of progress with a 19 % improvement in new crop export sales because the USDA has been forecasting a 22 % improvement.
Last year the United States exported 1.661-billion bushels of corn that was grown in 2022. The 2023 corn export forecast was 2.05-billion bushels. But then the USDA lowered its export prediction to 2.025 billion bushels in its October supply and demand estimates and weekly export sales reports confirm that exports are still on pace to exceed 2-billion bushels of corn to international buyers in this crop year.
This puts the market in a situation where the mixed messaging has stalled out very much movement either up or down in price. We’ve got an excellent pace in export sales (which should encourage the markets higher).
But at the same time, those sales are before the USDA’s forecast (which should weaken prices), and what is left is a market that doesn’t have the confidence to move in either direction. From early August to the end of October, December corn futures in Chicago have really only traded between $4.70 and $4.90.
I am a firm believer that every kernel of crop which gets exported out of the marketplace will help to tighten up corn stocks as we get further into the crop year. Certainly, if the pace of sales was poor it would tell us that the price is too high to stimulate demand, and at least in terms of U.S. corn pricing that does not appear to be the case.
It’s actually a little bit curious to see how little movement there has been in Chicago corn futures values over the past few months. In recent years we’ve seen a sharp increase in the volatility of ag futures prices, so the fact that December corn futures were basically trapped in a 20 cent range (between $4.70 and $4.90) for most of August, September, and October. It is also important to note that prices held in this tight range during the same period when new crop corn export sales for U.S. vendors have been quite strong.
The exceptional pace of American corn export sales may have created a bit of a challenge for new crop corn exports out of the Ontario ports.
The fact that the U.S. seems to have sold so much corn at relatively low prices, and appears to have a lot more to offer might have made overseas buyers a bit complacent. It’s a bit like having been to Costco and purchased some giant packages of paper towels. Even if your next stop on the trip home is the grocery store, you’re not apt to buy more paper towels even if the price is similar. We may be experiencing the same sort of buyer reluctance on corn from the Great Lakes terminals. Some of our traditional overseas clients may have loaded on this 20 % increase in US export sales and are not really motivated to buy a lot more right now.
Not to over use the paper towel analogy, but at the start of the COVID lockdowns a few years ago, there was a sharp up-tick in the purchases of toilet paper and paper towels because for some reason, consumers felt as though the supply going forward might be limited. That’s the thought process which it takes to make a market rally. The fear is that if I don’t get this purchase now, it might be more expensive the next time. There is simply none of that buyer anxiety in the global corn market in the fall of 2023. The United States expect to harvest a 15 billion bushel corn crop, and their expectation is to increase their export volumes in order to move out any surplus supply. It’s simply not a scenario that makes any buyers worried.
What the market has taught Ontario corn producers over the past couple of months is that the bottom is likely in on Chicago corn futures prices. When December corn was trading in the $4.70 to $4.90 range, U.S. export sales were quite strong. If there’s solid demand in that price window, we don’t need to go any lower. That’s not to say that Chicago corn futures can’t go lower on some harvest pressure, but if they do, there’s no reason for an Ontario producer to participate in selling when the futures prices are too low.
Finding the top of the corn price range is going to take a lot more patience than finding the bottom. It is certain not to develop quickly, but if export sales can remain strong, then prices are certain to ratchet higher as the year moves along.
Steve Kell is a Simcoe County crop farmer and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.Source : Farmersforum