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Markets watching the frost and Sept. 12

By Doug Tenney, Leist Mercantile

Declining grain prices continued that trend into the first week of September. December 2019 CBOT corn made a new contract low of $3.53, over a dollar below the contract high of $4.73 from June 17. Kansas City wheat reached a 14-year low that same week. Chicago December CBOT wheat tumbled to $4.50 ½, well below its summer high reached in June of $5.65 ¾ and its contract high at $6.34 ½ established in August 2018. The contract low for December wheat was reached May 13 at $4.42 ¼. While U.S. corn and soybean production for this year falls below levels seen in 2017 and 2018, plentiful and ever-increasing world stocks of grains continues to keep prices on the defensive. U.S. grain exports face stiff and growing competition from other world suppliers. Early September, South American and Black Sea corn sale values were 15 to 45 cents per bushel below those from the U.S. Gulf for shipment this fall and into December.

U.S. temperatures in early September reached into the 40s in the northern Corn Belt states. While temperatures are cooling and 6- to10-day forecasts indicate normal to above normal temperatures, there continue to be no frost threats into September 20. The market will aggressively monitor northern U.S. temperatures through Oct. 10.  Here’s why. In early September there were 53 million U.S. corn acres not yet in the dent stage. In addition, 10 million soybean acres had not yet begun to set pods. It will indeed be a race to the finish for U.S. corn and soybeans to reach maturity before a killing frost.

An EPA announcement in August granted small refinery exemptions (SREs) for 31 small refineries. This announcement allowed those refineries to not include ethanol in their gasoline blends. This is not the first exemption granted by this administration, with previous exemptions dating back to 2016-2017. It is extremely troubling to producers as they quickly see demand destruction for corn. Using corn to produce ethanol, also known as a renewable fuel has been around for 30 years. Plant expansion was particularly evident in the past 10 years all across the Midwest. Producers made cropping and equipment decisions based on the continued use of ethanol. We have seen E15 and E85 Ethanol stations spring up across the Midwest the last 10 years. However, the number is significantly less than had been expected in past years. While we have seen several new weekly records for corn used for ethanol in the past 18 months, the ethanol line in the supply and demand tables has been shrinking in recent months.

Corn demand for the 2019-2020 marketing year (September 2019 to August 2020) continues to shrink. The August WASDE report had corn exports of 2.050 billion bushels, down from 2.275 billion bushels in the May WASDE report, a cut of 225 million bushels.  In August, corn used for ethanol stood at 5.475 billion bushels, down 25 million bushels from May. Sept. 12 projections suggest U.S. corn demand will see further cuts in the months ahead.

The U.S. and China each implemented another set of tariffs against each other on Sept. 1. Late August, the Commerce Department in China indicated they wanted to see the trade deal get finalized as the current tariffs are affecting their economy. The U.S. continues to insist China wants trade meetings to take place. Yet, at times little is heard from China concerning their next steps. In the days following Labor Day, it was announced the U.S. and China would be meeting in early October. Perhaps the caterer for lunch at these meetings thinks he has a pretty good gig, as the October meetings would be the thirteenth time the two have met. Ongoing unrest for China in Hong Kong perhaps suggests China has gains to come up with a trade deal.

Expect corn and soybean harvest to last well into late November.

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