Source: John D. Anderson, Senior Economist,American Farm Bureau Federation
The new crop December corn contract finished the week last week at its lowest level in about a year. While old crop contracts remain well supported by tight current stocks and recent better-than-expected exports, expectations of a large 2012 crop have put pressure on new crop futures. Last Friday, the spread between May and December corn contracts was $1.38. This is the largest May/December inversion since 1996, when a similar fundamental situation (short old crop, expectations of large new crop) was developing.
Very favorable planting progress so far this year has helped to add to the pressure from large expected plantings. Monday’s Crop Progress report showed this year’s corn crop to be 71% planted through last week. This is far ahead of last year’s 40% rate (a very slow year) but a bit behind 2010’s 81% rate (a very fast year). The five-year average – a better gauge of what should be considered normal – is for planting to be just under 47% complete by this time of year. So, this year’s crop is, objectively, getting in the ground faster than usual. It is consequently getting out of the ground faster. Monday’s Crop Progress report estimated that this year’s corn crop was 32% emerged through last week compared to a 5-year average of 13% emerged by this time. The “I” states are way ahead of the game this year. Illinois, Indiana, and Iowa corn crops were shown to be 64%, 50%, and 23% emerged, respectively. This compares with five-year average emergence of 18%, 12%, and 11%, respectively.
Of course, an early crop is no guarantee of a good crop – just like we noted last year that a late crop was not necessarily doomed to failure (although last year’s crop did end up pretty much a failure – worst deviation below trend since 1993). An early crop does improve the odds, though. It improves the odds, first, that farmers will actually be able to plant all the corn they intend to plant. A narrowing planting window won’t force them to shift to another crop. And it improves the odds that the crop will avoid too much hot, dry weather during its critical pollination phase. The market right now is trading those odds on the new crop contract, but we still have a long way to go before the crop is made, and – as the old crop contracts remind us – corn supplies are still awfully tight right now.