Dr. Ken Rietz
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In September of 2024, the forecast for the corn carryout (ending stocks) was a bulging 2.057 billion bushels. It took only 5 months for the carryout to settle at a rather disappointing 1.54 billion bushels, a drop of more than -25%. The corresponding futures prices of corn jumped accordingly. From a low on August 25, 2024 (SEP 24) to a high on January 29, 2025 (MAR 25), the front month futures spiked more than 37%. As you might expect, there were several factors that pulled together to create a miscalculation that large. Let’s dig into them and then look at potential directions that the corn market might move. But first, here is the graph of corn futures since January 2024 as context for our discussion. |
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The WASDE report in September, as already noted, indicated a high carryout, and this drove the price of corn lower. This encouraged buyers to snap up wheat at bargain prices, driving up exports and ethanol production. The threat of tariffs could have been a factor as well, but that is difficult to quantify. The likely scenario now for the price of corn, ignoring any other factors, would be to drift lower. However, there are other factors that cannot be ignored. Specifically, we must look at Brazil, and its now-routine second corn crop. The corn-growing regions of Brazil are on the edge of a tropical climate. That means that, right after they have finished harvesting soybeans, they have enough growing weather to plant a second harvest of corn, called the safrinha crop. This crop is planted in the last half of January to the first half of March, and is harvested around August, before the US corn harvest. This second crop of corn has boosted Brazil’s corn production and export dramatically, mainly because the second crop is a lot larger than the first crop. (This is ironic because safrinha in Brazilian Portuguese means little crop.) For example, last year’s first crop was 32 million metric tons (Mmt), while the second crop was 94 Mmt, almost three times as large; this is typical. Brazil and its export partners now rely on this safrinha crop. And in one sense, the global demand depends on it. A reduction in that crop would have serious global ramifications. Unfortunately, there are signs that a reduction is possible from that nemesis of all agriculture: weather. The two main weather forecasting models are GFS from the US and ECMWF from Europe. Unfortunately, they don’t agree on the amount of rainfall that the region will receive. So, safrinha might turn out well, or not. And the result will have a significant effect on the futures price of corn. So how should traders deal with this conundrum? The weather effects will only develop later, so playing corn prices to drift slowly downward is the simple answer. But keep an eye on Brazilian weather, and if it looks to hurt the corn crop, then traders may consider closing those trades and expecting the corn price to rise. |