Today I’m continuing my series on the state of commodity markets for several Texas High Plains commodities. We continue the series today with the corn and sorghum markets. No surprise to those who keep up with agricultural markets; sorghum is a star at the moment. You can see a similar post for the wheat market in last week’s post. Over the rest of February I’ll also cover the markets for cotton and cattle.
Dates and Deadlines
1/4/2021 – 2/12/2021 – CRP Enrollment
1/27/2021 – 3/3/2021 Each Wednesday – Master Marketer Amarillo Online Program
2/18/2021 – 2/19/2021 – USDA’s 97th Agricultural Outlook Forum
2/9/2021 – Perryton Summer Crops Conference
2/9/2021 – WASDE
2/19/2021 – Cattle on Feed
What I’m Reading
Chicken wings defy pandemic on road to Super Bowl – AgriLife Today
Farm Futures survey shows higher corn acres in 2021 – FarmFutures
EPA nominee Regan talks future of WOTUS, RFS – FeedStuffs
Corn Dec ’21 (ZCZ21) (2/8/2021)
Texas Triangle Sorghum Prices, Weekly (2/8/2021)
This morning (February 8th) December ’21 Corn opened at $4.51/bu. and rose rapidly to $4.58/bu. I believe this rise was driven on last weeks news of multiple million metric tons of export sales. That price represents an increase in value of 17% since November 2nd and 25% since August 3rd. In a normal year, we peg sorghum price fairly accurately to the price of corn since a futures market does not exist for sorghum. However, this is not a normal year for the sorghum-corn price relationship. As of the most recent Texas Triangle cash delivery report, the current price of sorghum ranges from $8-10/cwt. depending on your location on the Texas High Plains. Chinese purchases have made sorghum a very profitable option this year. Corn and sorghum production on the Texas High Plains is responsible for $652 million on average each year, so the dynamics of these markets are critical to the region’s agricultural economy.
Last August, I gave a presentation in which I reported that I saw no reason for corn price to jump above $4.00/bu., which would leave sorghum in the mid-$3.00/bu range. So what dynamics led to the rapid run-up in prices? First, major supply adjustments in the August WASDE led to a breakout in prices for most of the grain complex. Both corn and sorghum left a range-bound trading pattern and entered steadily increasing price increases. In fact, prices have risen on adjustments to supply and demand in almost every intervening WASDE. Several factors are leading to these sustained price increases. For brevity’s sake, the most important factor driving these changes are massive export demand for both crops, most of that demand from China. In fact, U.S. corn export sales commitments for the current marketing year currently total 2.2 billion bushels, about 1 billion bushels or 54% ahead of schedule.
Current Prices
As a result of these dynamics, USDA raised the forecast season average farm price for corn in the January WASDE from $4.00/bu. to $4.20/bu. Our Texas A&M AgriLife Extension budgets include an estimated harvest-time price of $4.22/bu. USDA raised the forecast season average farm price for sorghum in the January WASDE from $4.40/bu. to $4.70/bu. Incorporating the local basis, 0ur Texas A&M AgriLife Extension budgets include an estimated harvest-time price of $8.04/cwt. ($4.50/bu.).
U.S. Corn Supply and Use (January 2021 WASDE)
U.S Sorghum Supply and Use (January 2021 WASDE)
Corn and Sorghum Breakeven Prices
We often discuss the need to understand your own breakeven price to cover variable costs and total costs. The point at which average variable cost exceeds price is the shutdown point. When price rises above the shutdown point, it is within your financial interest to continue producing as you can dedicate some revenues towards fixed costs. The point at which average total cost exceeds price is the breakeven point. When price rises above the breakeven point, you have economic profits.
We have several budgets for corn and sorghum. There are budgets that include continuous cropping, rotations with other crops, and different types of tillage. You can find our Texas A&M AgriLife Extension wheat budgets, and all of our other budgets here. For sprinkler irrigated corn, the breakeven price to cover variable costs is $3.02/bu. To cover total costs, the price of corn sold must be $3.98/bu. For continuous sprinkler irrigated sorghum, the breakeven price to cover variable costs is $6.01/cwt. To cover total costs, the price of sorghum sold must be $9.22/cwt.
Remember that these budgets are an approximation and apply ‘in general’ to a diverse area, from Swisher to Dallam county. It is important to tailor these figures to your own operation.
Pricing
These breakeven values provide a target to aim for when pricing corn and sorghum. Current prices of both are well above the breakeven prices to cover variable costs for most production models here on the Texas High Plains. In some cases (sprinkler irrigated corn) current prices provide economic profits in a very real way. So, what should we all be doing in terms of pricing our crop?
After a lot of discussions with Mark Welch and John Robinson I think the real deciding factor this year will be how the acreage picture shakes out, both nationally and locally. The Farm Futures acreage survey reports an increase in corn acres year over year to 95.4 million. With stocks already below the 40 days of use on hand level, that quantity of acres will still keep stocks low, particularly if China continues outsized purchases. Sorghum is more dependent on the Chinese market than corn, and betting on their activity is a coin flip, though they will surely eventually run out of places to store grain.
The goal is to price in a profitable range, hopefully even above the breakeven price to cover total costs. Economic profits are currently available in corn if you lock in prices now. The seasonal pattern for corn (and usually sorghum, though in a less reliable pattern) price dips after planting is confirmed. I expect more volatility in prices this year on tight stocks. Any news indicating even small supply adjustments tend to induce outsized market swings. The prices of corn, beans, wheat, and sorghum continue to see support from international trade, low stocks, and increased use.
2021 December Corn Futures and Seasonal Index Pattern
Courtesy of Mark Welch
If none of your crop is priced and your budgets currently indicate profitability now may be a good time to price a portion of your crop. Alternatively, tomorrow’s WASDE may provide a bit more support if the USDA chooses to incorporate last week’s large export commitments. If that export commitment is priced into the market as of today, pushing Dec ’21 Corn to $4.58, USDA choosing to leave last week’s export figures out of the WASDE won’t eliminate much in the way of price strength. It is a good idea to have a portion of your crop priced by the time the acreage report comes out as prices regularly dip following a more clear production situation.
If I am a sorghum producer, I am inclined to have even more of my sorghum priced right now, whether through the use of a cross-hedge with corn or in the local cash. Given sorghum price’s reliance on the Chinese market, any sudden changes they make (ceasing purchases) will lead to a bigger drop in price than in corn, percentage-wise. A cross-hedge with corn will not be dialed in as accurately as a normal year given sorghum’s price breakout, but it may still provide some small support. I would be more inclined to seek a cash contract if possible.
Keep an eye on your marketing plan and be particularly nimble tomorrow in preparation for the February WASDE, and around the Prospective Plantings report (March 31) which is a major indicator of the acreage situation for 2021.