As of Jan. 24, the Global Forecast System model was not as wet as the European model for Brazil. Still, the weather situation in Argentina and Brazil is not as dire as it was a few weeks ago. A more regular rain pattern is noted with systems passing and producing rainfall every six to eight days. This should benefit the soybean crop, but damage to the corn crop is irreversible.
Now, the U.S. Department of Agriculture is estimating Argentine corn production at 26 million metric tons and the Argentine Ag Ministry on Jan. 24 estimated the country's corn crop at 23 million metric tons down from its former estimate of 30 million metric tons. This news, along with talk of harvested corn in Rio Grande do Sol coming in at 50 percent losses, put support under the corn market Jan. 24.
Rumors surfaced that Argentina would not proceed as previously planned with its new export program and would continue the previous licensing program. If Argentine corn production came out at 22 million to 22.5 million metric tons, it would be the same as a year ago. Argentine corn consumption is estimated at about 7.5 million metric tons, but the country had plans (like Brazil) to expand its ethanol industry this year and to court Chinese demand. While this rumor was denied, I plan to email my Argentina sources and see what they have to say.
The cash basis has been quite good and I hear that Minnesota ethanol plants have bought corn for February and March but not for April, May, June or July. Exporters, ethanol plants and livestock producers need corn and farmers have not entertained them with cash sales. Note that the front contract is inverted to the new crop and there is little incentive to sell in the deferreds. The end-users know they need corn between now and spring, when farmers are busy and can't take time to move grain.
Until recently, it was a good winter to move grain compared with most winters. Even in central Illinois the basis is quite strong. I would strongly suggest that if March corn does not close higher than $6.46½ on Jan. 31, cash sales should be made. With all the bullish rhetoric on the South American corn crop and the futures failing to close higher for the month after higher highs from December, you need to ask why?
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Basis should remain strong until ethanol plants feel comfortable. I tend to look for a strong monthly close but also a higher high in February than what we have seen this month. On the flip side, has the market already priced in the weather concerns in South America? These are not easy markets. Bottom line, we need to be wide awake and able to pull the trigger. Another weather-related concern is the potential losses in the South American commercial corn crop. After weather created a less than desirable seed corn crop in the U.S., it is not uncommon for seed corn suppliers to turn to South American production to make up any losses. Major seed producing companies will have seed corn as cooler nights and more irrigation will lead to increased production in the areas where much of the corn is raised.
Elwynn Taylor, Iowa State University extension climatologist, says the latest U.S. corn yield outlook for 2012 is 148 bushels per acre with La Nina and 165 bushels per acre without. I understand that the La Nina is weakening, which means a better chance for moisture and cooler temperatures heading into the growing season. Based on Iowa state data and, assuming total costs excluding land, corn on soybeans would equate to $503.78 per acre (180 bushels per acre), soybeans on corn would equate to $287.91 per acre (50 bushels per acre), and corn on corn equates to $557.52 per acre (165 bushels per acre). That said, corn should not have much of a problem pulling acres away from soybeans.
Martin of Ag Investment Services Inc. in Webster City, Iowa, can be reached at 800-527-0051, email ag_invst@wmtel.net .
