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Grain markets improve amid reduced crop estimate

published: September 17th 2020
by: Adam Russell
source: Texas AgriLife Today

Texas grain producers are experiencing better market conditions this fall compared to where prices were mid-summer, thanks in large part to reduced U.S. corn yield estimates in the nation’s grain-producing states, said a Texas A&M AgriLife Extension Service expert.

Mark Welch, Ph.D., AgriLife Extension economist, Bryan-College Station, said there was still some uncertainty around corn and sorghum, but several market factors have improved profitability for Texas grain producers.

The U.S. Department of Agricultureproduced an updated September report that lowered yield estimates. The report was based on in-field inspections by personnel, field samples, satellite imaging and other data-gathering methods to produce “harder numbers” regarding the U.S. corn crop.

“They cut the top out of the corn estimates between the high temperatures and a derecho windstorm,” he said. “We’re still likely to see an all-time record yield, but there is a little uncertainty because insurance claims are still being filed in areas that received the most significant damage.”

Grain markets rally

Corn production earlier this season was expected to be a record crop near 16 billion bushels. Now on lower yields and a small decline in harvested acres due to wind damage, a 14.9-billion-bushel crop is forecast.   

Corn prices rallied to their highest point since March on the reduced crop estimate, but COVID-19 and the subsequent economic recession continue to impact corn prices, Welch said.

Lower gasoline demand has also hurt the demand for corn-based ethanol.

“Corn consumption, tempered by the economic turmoil of COVID-19, will follow the pace of recovery for oil and gas and subsequently ethanol,” he said. “Gasoline demand is still 10% below where it was this time last year.”

Another factor supporting the price increase from $3.20 per bushel back up to the $3.60-$3.70 per bushel range is a dramatic increase in exports to China, Welch said.

“China has come into the market in a big way to buy U.S. corn, sorghum, wheat, as well as soybeans,” he said. “Not normally a top importer of U.S. corn and wheat, their recent demand is very positive for prices.”

Lower ethanol demand due to COVID-19 cut about 500 million bushels from corn use in the 2019-2020 corn marketing year. Now corn exports in 2020-2021 are projected to be up over 500 million bushels, driven by increased exports to China.

The weaker dollar also helps make U.S. exports more affordable in the global marketplace, and China needs feed as they rebuild their swine herd following massive losses to African swine flu over the last several years.

“Those are big numbers,” he said. “Despite the slow recovery on ethanol demand, export numbers are strong, and that alone has reset the table for corn.”

China has also increased its imports of U.S. grain sorghum, reflecting increased demand for that commodity as both a feed and food grain.

Texas corn and grain crops

Welch said he was hearing corn yields in much of the Coastal Bend were excellent and that rains in the Texas Plains relieved some of the heat and drought stress in the state’s top corn producing region. Corn in the Texas Plains is nearing harvest, and he expects Texas producers to find positive market opportunities. 

Sorghum producers should also see a positive market and high prices relative to corn, he said. Grain sorghum is selling at a premium to corn in some cash markets and has traded at a stronger basis in others as the growing season nears an end.

Soybean producers are seeing sharply higher prices as well, Welch said. Texas produces a small amount of soybeans relative to other parts of the U.S. – around 115,000 acres. But with futures trading at more than $10 per bushel, he expects soybeans could be on growers’ radar going into 2021.

“The shape of the market right now could impact corn and sorghum acreage next year,” he said. “Soybeans might be an attractive option for growers because profitability of beans is better. I think you might see an increase in soybeans relative to corn next year, but we’re also seeing good rallies in corn and sorghum as those crop forecasts tightened. It’ll be interesting to see how the market takes shape going into the 2021 growing season.”

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