Drought Concerns Push Nearby Chicago Corn Contracts Over Seven Dollars a Bushel

Demand for U.S. corn continues to be strong, and it’s showing in Chicago, where the May spot-month contract recently pushed well over seven dollars a bushel. The July contract is around seven dollars as well. Joe Vaclavik, founder and president of Standard Grain in Nashville, Tennessee, talks about the reasons behind the higher corn prices.

“I think the weather issues in Brazil are a big-time deal. Just about every key corn-growing area in Brazil is in some stage of drought. They have been extraordinarily dry. There is absolutely nothing in the weather forecast in terms of rain. May is a big month for crop production in Brazil for the second corn crop. May would be the equivalent to their July, especially this year with everything late.”

He says this could mean more export business for U.S. corn in the year ahead. “This is a big deal, and I think that this has resulted in ideas of better export demand for corn out of the U.S., both for old crop and new crop, reduced carryout. A lot of groups have been reducing their production estimates for this Brazilian corn crop, and USDA has their estimate at 109 million metric tons; most of the private groups are gravitating down toward 100, so that’s nine million metric tons lower. 350 million bushels is a big difference when you consider how big 350 million bushels are on the U.S. balance sheet. It’s a big deal, and it’s an additional export business that may make its way to the U.S. or elsewhere and just tightens up the world situation.”

It’s been a while since the nearby U.S. corn contract was over seven dollars a bushel. “I would not pay a whole lot of attention to that. There are only about 5,000 contracts of open interest there. But to be above seven dollars in a spot-month corn contract, you must go back to 2013 when we spent time above seven dollars. So really, this is the best in a little less than eight years, seven-and-a-half years, that we’ve been above seven dollars in a spot-month contract.”

While South American drought is top of mind in the market, dryness in North America isn’t quite as high on the list of concerns yet.

“I’m not going to say it’s not a factor. There is big-time drought in North Dakota and northern South Dakota; really, most of South Dakota in some stage of drought. The western half of Nebraska is in some stage of drought. A lot of Iowa and Illinois are abnormally dry. There are some pockets that you could say are drought areas right now, so it’s a concern, but it’s not the biggest concern right now.”