As of Sunday, 6% of the U.S. corn crop had been planted versus a five year average of 14% – a slow start to be sure. Significant progress was made across more Southern locations (Louisiana was virtually completed, for example) while the heart of the Corn Belt has seen little to no progress.
While initial progress has been slow, plantings should accelerate this week as weather appears favorable across much of the Midwest and soil temperatures have begun to creep higher (need to be above 50º for seeds to germinate, at a minimum). It would be a mistake to bet against the U.S. farmer, crop genetics and modern farming technology full stop, but even more so with the weather as a tailwind. We expect that the corn plantings make significant progress this week toward the historical averages.
Having said that, our bias on corn is still bullish as demand remains brisk:
- Weekly corn inspections for export continue to trend higher (Exhibit 1);
- Ethanol production for both domestic consumption and export remains solid (Exhibit 2)
Agricultural commodities broadly started the week lower as we saw non-commercial (hedge fund) positions come down across the complex. We note that corn remains one of the least popular positions across soft commodities.
As stated above, our bias is to be long corn based on what we expect will be continued robust demand given U.S. corn’s global position as an inexpensive input and the risk that usage poses to corn stocks given a stocks to use that remains low by historical standards. We would balance a long position in corn with a short position in beans, and also see an emerging opportunity to be short wheat, perhaps more in 2H.