Last winter, the February crop insurance price guarantee was 5.90 for corn. Many private analysts thought that would encourage more acres of corn to be planted than 88.6 mln acres. Their acreage models were off. That was too few acres to sustain production relative to demand as the carryover projection has been shrinking even though export projections have been curtailed. Corn exports get more weight than they deserve on corn market psychology as they are the tail of the dog called corn demand. Corn exports were 13.8 percent of use in 2021-22 and despite exports declining 321 mln bushels in the October supply/demand report they represent 15.2 percent of corn use in their 2022-23 usage projection.

By contrast over 46 percent of U.S. soybeans are exported. Corn demand is by far ethanol and feed driven and we will export some corn regardless of the dollar. I bought December ’22 corn during harvest last year believing that it was too cheap and I still own some today. I was right. The fall crop insurance guaranteed price set during October this fall was 6.86 for corn. Long term corn ownership has been very profitable.

December ’23 corn got way too cheap again during the seasonal break last summer and we again recommended longs. Our trade page shows us long December ’23 corn at 583 which ironically was cheaper than the December 2022 crop insurance corn price guarantee of 590.

How were we going to maintain or grow more acres of corn in 2023 with a lower year-to-year crop insurance price guarantee? To me, given that December ’23 corn is still trading near 623 (as of this writing), it is my favorite long on the CBOT. If December ’23 corn is trading just 623 next February when the initial crop insurance price guarantee is set, given other factors including higher production costs and expanding drought, I do not think farmers will add any more corn acres next year. That means further shrinking supply relative to demand. That will result in either a sharp winter rally to add price to encourage farmers to risk planting more corn or settle the issue with a price rally that destroys demand for corn. I do not envision that we can come close to getting the corn acres needed next year with anything less than the equivalent of the fall crop insurance 686 price.

When following the NOAA drought monitor, it is plain that the drought conditions are expanding/worsening across most of the U.S. this fall. It would appear that we will go into winter with drought locked in across the U.S. On my recent trip through the South, drought was a major topic of the farmers in the Delta region that we talked to. By and large they irrigate, yet heat and lack of natural moisture falling was enough to trim their yields this season. What is usually four bale cotton was two to three bales and irrigated corn only yielded 150-180 bpa because of the heat extremes.

Winter is the optimum time to have a drought and many expect that next spring if they “plant in the dust, the grain bins will bust.” That is the old adage. Sure, it can rain next spring and summer, but 2023 crop potential is not being helped by fully depleted soil moisture profiles in the WCB and Plains states. We have had zero sub-soil moisture recharge here in northwest Iowa. Many think these conditions will improve next spring, betting against a multi-year drought, but they may not. They didn’t in 1988. The location for the regional drought was reversed in 1988 from today as then the ECB was impacted most by drought. The 1988 drought line ended along Highway 71 in Iowa which is about three miles east of our Spencer Iowa farm. We ducked that one.

It takes more corn-on-corn to add corn acres to U.S. production next year. If it is still dry at planting time next spring, I do not think farmers will have the risk appetite to grow more corn-on-corn…at least not without subsoil recharge and not for 623. The November set fall soybean crop insurance price was 1381 which is a discount to the current price November ’23 soybeans. To me these markets have this backwards. December 2023 corn should be higher than the 686 fall price and November ’23 soybeans lower than 1381.

There are some who think that USDA will increase yields. I am still in the Pro Farmer crop tour sub-170 camp for the corn yield. We saw accelerated dry-down as part of the fall drought which robbed us of some more yield. Accelerated dry-down of corn eliminated the dryer gas bill, but in the case of soybeans just reduced the yield. I do not think that there is a bearish yield revision coming that is going to make a difference to the larger bullish fundamental picture. Any weakness in December ’23 corn is a buying opportunity. December 2023 cotton was my second favorite.

Protracted drought will not benefit U.S. soybean growing prospects for 2023 either but the trade is falling all over themselves seeing who can predict the larger Brazilian soybean production forecast. It is not the first time that they have done this but Mother Nature did not cooperate with their previous grandiose soybean yield projections. If by chance something happens that undermines their current record upon record forecast for Brazil’s soybean production, then the soybean market, which in my opinion has outperformed, would have great upside potential. Remember, our soybean price studies show potential to $20 which is where demand destruction would occur.

While I respect macro-market forces, you are not going to grow supply of anything by raising interest rates. High costs discourage producers from expanding production. All we have heard is bearish this and bearish that with a drumbeat of negative news that has suppressed these markets, but not yet broken them. This exercise was intended to break farmer resolve to get them to let loose of physical bushels. End-users covered immediate needs with the harvest but got no significant forward physical coverage. Basis levels should remain bullish. The news is supposed to be the most bullish at the top. Let me know when that happens. Instead, the bearish macro-news has been setting up buying opportunities for real commodity fundamentals.