Corn Prices Depressed by Large Inventory

National corn yields were at record high levels of 175.4 bushels per acre according to USDA. U.S. corn yields have set new records in three of the past four years. Even though corn acreage was down in 2017, the record yields mean that the U.S. produced more corn than will be consumed with ending stocks rising to near 2.4 billion bushels. Unfortunately, ending stocks for the 2017/18 marketing year will rise for the fifth consecutive year. As a result, marketing year average prices are expected to be the lowest in 11 years dating back to the 2006 crop.

Indiana yields at 181 bushels were 8 bushels higher than last year and the second highest on record according to USDA estimates. The strongest yields relative to trend were in the southern third of the state followed by the northern third. Yields in the central third of Indiana were near average.

Prices for the 2017 crop are expected to be down. USDA says the U.S. marketing year average (MYA) price was $3.36 per bushel for the 2016 crop and will fall to an estimated $3.20 for the current 2017 crop. In Indiana, farmers marketed the 2016 crop at an average of $3.63. Average Indiana prices for the 2017 crop are expected to be around $3.40 to $3.50.

With the large inventories, it will be difficult for corn usage to rise enough to generate strong price rallies. Rather it is recommended that producers keep their rally objectives moderate. Corn prices this winter may find a trading range of about 25 to 35 cents per bushel. Pricing at the high end of that range is the objective.

With large inventories, the market is providing strong price incentives to store into the late spring and early summer. The goal is to earn as much of these premium prices as possible and also cover storage cost. Price premiums for early-summer delivery are expected to be about $.30 to $.32 higher than nearby bids. This is composed of about $.16 premium for July futures over the March futures and an expected $.15 better basis. If on-farm storage costs to next June is $.08 per bushel this premium price of $.31would provide a $.23 per bushel net return to on-farm storage.

Most do not want to price corn at current low levels but want to wait for that potential $.20 to $.30 rally. If that occurs, then they would price but for early-summer delivery. Three ways to do that are: 1.) Sell July 2018 futures and wait for basis improvement, 2.) Do a Hedge-to-Arrive contract at the buyer where they sell July futures for your account, 3.) Sell a cash forward contract if futures and basis are acceptable. Regardless, remember that waiting for higher prices before selling involves the risk that corn prices could still go lower.

The dismal current corn prices and anticipation of poor returns to corn in 2018 will likely begin to shift some acreage out of corn around the globe. As a result, corn prices may begin to improve for the 2018-2019-2020 crops. At this point, it appears that 2017 corn prices may well be the lowest marketing year average for the 14 crop years from 2007 to 2020.