Border Demand Steps in to Keep Valley Corn and Milo Prices Steady to Improved

BY JOHN MILLER

At this time last year China had already been a very active player in the Corpus Christi milo export market. The quality losses due to untimely mid-summer rains that sprouted and/or spoiled some milo in 2021 slowed that business down temporarily, but for the most part the ocean vessel market drove local prices for the better part of the summer and fall. The early summer of 2021 saw the corn futures market at levels of a dollar or more lower than the same time for the current crop.

However, it was the strong Chinese demand at Corpus Christi that lifted basis levels that provided a strong port price, especially for good quality milo. This season has been quite the reverse for milo. Current vessel demand at Corpus Christi for milo harvested during June and July has to this point been low compared to recent years which has been directly reflected in the prices there. Fortunately for this year for Valley farmers, the demand for trucked milo by feeders in Mexico has offset the lack of June/July export demand at Corpus Christi at least for that part of the crop that needed to be moved during the harvest season. During harvest milo prices ran anywhere from one to two dollars per hundredweight better than last year, a much-needed boost given the higher costs for most supplies farmers use.

For corn, this season was very similar to last year as local truck demand remained strong throughout harvest. It has been the case that truck demand for corn at the border has been increasing in recent years. Several factors are at play. Changing cultivation practices, improved corn varieties, increased animal feeding in Texas and Mexico changing feeding rations, port-centric domestic milo demand and other factors have contributed to a rise in corn acres across Central and South Texas over the past decade or more. This has coincided with increased corn demand versus milo even at some feeder-based truck markets in Mexico. This is not to say that what milo grown in not used. In fact, quite the reverse is true depending on the price relationship. It is just that handlers and resellers in the Valley have become very skilled at sourcing and moving corn cross-border with the same efficiency as milo. The powerful fact for the Valley farmer is that when the right planting conditions exists, corn and milo are both viable rotations to cotton with respect to marketability.

We know for sure that in agriculture every year is slightly different whether thinking weather, crop response to practices, or the marketplace. Let’s consider some the reasons why the border demand for corn and milo was so important to Valley farmers this year. From Figure 1 below, you can see the December corn futures price represented by the black line and understand the importance of timing as the higher price during June and early July coincided well with our corn and milo harvest. Uncertainty about the condition of the just planted Midwest corn and soybean crop was at its peak about that time.

Had we seen weak demand from both the Port of Corpus Christi and Mexico however, prices here could have been a lot different. Figure 2 shows the basis level for corn and milo since this time last year. Without the strong pull from the export market a current corn basis of 80 cents over December futures and a milo basis of 30 over December

Figure 1: December Corn Futures (ZC22) vs. August Diesel (EHOQ22).

Texas Rio Grande Valley Country Elevator Price

Figure 2: Valley Corn and Milo Basis July 2021 to July 2022

Figure 3: Valley Cash Corn and Milo Prices vs. December Futures July 2021 to July 2022

futures is practically equal to last year when China was the primary market. Figure 3 shows the cash prices for corn and milo over that same period reported on a per bushel basis; and keep in mind that these are tracking numbers and one may have found trades outside these ranges. Looking at the chart during harvest, cash corn trading between $7 and $8 dollars per bushel translated to roughly $12.50 to $14 per hundredweight. Sorghum during that time traded between $6 and $7 per bushel which translates to the $10.75 to $12.50 range. Outside of corn futures volatility, how is it that corn and milo prices outperformed 2021 without the benefit of strong Chinese demand at Port?

As mentioned, tight supplies of corn nationally coming out of last year played a roll. As did ongoing uncertainty about whether the current US crop can adequately bring national supplies to comfortable levels. Strong global demand for feedgrains along with a rebounding economy that has used more corn-based ethanol have not allowed stockpiles to build. But we also have serious logistical issues at play. Back to Figure 1 you can see the futures price for Heating Oil (diesel) in blue and the extremely high prices read on the left margin since early spring. The high cost of diesel has raised the cost of rail transportation for corn out of the Midwest that gets shipped to Texas and Texas and Mexico. The railroads have other challenges similar to most US businesses that provide or use transportation. Rail track and equipment maintenance cost and parts availability, increased cost of rail and related labor, labor interruptions due to Covid and labor competition are just a few. All these cost factors alongside the increased risk of shipment delays drive up the cost of getting corn or milo from the US interior to Mexico and even Texas which like Mexico is a deficit state for feed ingredients.

While Northern Mexico made a respectable milo crop, the Northern corn crop was very weak and the corn across Mexico’s Central Highlands is some way off. As a result, Valley farmers were able to take advantage of a demand window for their corn and milo that lessened the impact of the lack of early vessel sales at Corpus Christi. It is very likely that Mexico will continue to be an important milo market while also maintaining their position as the US number one buyer of exported corn. And farmers understand every day that timing is everything. As slow moving as it may seem, it is very hard to anticipate which corn or milo users will be most active during the harvest season. The key is preserving flexibility and understanding that every year can bring different circumstances.