Can Corn Do A 180?

As we enter the second half of the 2022-2023 marketing year, the 2023 planting season moves to the foreground. The central question for the 2023-2024 marketing year will be whether corn yield in the U.S. can exceed 180 bu./ac.

This winter, multiple agronomists have asserted that yields are leveling off, awaiting a new breeding or genetic advance. Likewise, while the moisture situation is positive in the Dakotas and Minnesota, too much of the moisture remains in the form of snowpack for April. This will likely push corn planting later than desired. On the other hand, the trend continues to point to a final yield at or above 180 bu./ac., and the moisture situation in the “I” states is favorable. The higher projected plantings and a yield above 180 would produce a record crop, but the lack of strong demand growth doesn’t bode well for prices in this scenario.

Old crop corn has remained supported as Argentinian yields continue to be reduced and we enter the safrihna weather season in Brazil. U.S. exports have largely caught up from last fall’s laggardly pace, and China appears to be accelerating its imports.

The impact of interest rates on storage costs continues to make me question the amount of corn still in on-farm storage. At 5% interest, the opportunity cost of storage for a bushel of corn is 2.75 cents/month, in addition to shrink and other costs. Yet May futures prices remain at or above July futures prices—a combination that begs for immediate sales.

Turning to new crop, the biggest questions right now are how much spring conditions will delay or alter planting, and whether 180 bu./ac. is attainable. At the beginning of spring, the northern corn belt was under the most snow it’s seen in years. Between the effects of snow melt and temperatures, it is unlikely that farmers in the Dakotas or Minnesota will be able to plant on time this year. Planting Progress reports will be closely watched.

The remainder of the corn belt looks very good for planting. The winter has been unseasonably warm and wet for the central and eastern corn belt. Assuming precipitation cooperates, farmers in these areas should have a positive start to planting. An early or on-time start from eastern Nebraska to Ohio will produce early price pressures for 2023 harvested corn.

Using my 180.2 trendline yield and the 92-million-acre corn planting projection from the 2023 Prospective Plantings report leads to a 15.08-billion-bushel harvest. In the long-term baseline released in February, the USDA uses a 181.5 trendline, which would result in a 16.7-billion-bushel harvest. For reference, the largest harvest to date was 2016, when 15.15 billion bushels were produced from a 174.6 bu./ac. on 94 million acres.

If we plant at least 92 million acres with a yield of 180 bu./ac. or higher, the price implications will not be pretty. Feed demand will be hobbled by the decline in cattle on feed in 2023 after the extreme drought in 2022. I expect that hog and poultry numbers will rise, but not enough to offset cattle numbers. Ethanol demand should also remain largely static. Steady to higher oil prices may modestly increase fuel prices and margin. And it is not clear that the 2023-2024 European winter will be as mild as 2022-2023, posing a risk for natural gas prices to return to fall 2022 levels in late 2023, hurting margins. Even if exports were to pick up next year, such a change would not be able to absorb the effects of a 15+ billion-bushel harvest.

In short, I remain worried about the price prospects for corn in the coming year. There is a very real possibility of harvest prices below $5.00/bushel this fall, even at trendline yield, and no obvious source of demand to save the day.