Tuesday, April 12, 2011
Corn Prices: How High Can They Go?
Is the high in the corn market at this point? Not yet, if you follow some market analysts, but just where is the corn market going and can corn consuming industries pay those prices without hurting themselves. That is the question that many should be asking.
When the USDA released its March 31 reports on planting intentions and grain stocks, the market increased another 10% over the next couple of trading sessions. But when the April Supply and Demand report was released, it did not add any fuel to the fire, and in fact set the market on its heals for a half hour. But that was only temporary, and new highs have been put into the market. Are those going to hold, or is there more to come, and how will the livestock and ethanol industries respond?
Those questions are rhetorically asked by Purdue marketing specialist Chris Hurt in his latest market outlook newsletter. Hurt thinks the April report did not reflect a lower carryout of the old crop because USDA did not want to reduce it beyond the current 18 day supply. He says whether there is really less than the 675 million bushels projects in the March Supply Demand report will have to be sorted out by the market over the next few months.
Hurt says the April report does suggest ways that the 675 million bushels can stand for now, and the market still have enough corn. For livestock producers that means feeding wheat instead of corn, “In the Eastern Corn Belt, at this writing, cash wheat prices are similar to corn, with wheat having about 10% greater nutritional value compared to corn on a bushel basis. In addition wheat acreage is up 45% in the Eastern Corn Belt and up 41% in the Southeastern U.S.” He also says there will be some early corn available for the livestock industry when the old crop runs out. Hurt says August will bring a harvest of 440,000 acres of corn which can add to the feed supply increasing the total amount of corn available for livestock in the marketing year beginning in September.
Hurt believes that overall use will need to be reduced and the current high price of $7.81 is still not enough to do the trick, because the livestock and ethanol industry can still be profitable while paying those prices. Hurt says a $7.40 price for cash corn will not halt an ethanol refinery because there are higher prospects for gasoline prices and they will continue bidding on corn into the $8 range.
That will be about the top for the livestock industry before losses set in, says Hurt. He notes that more animals are being fed, some of them are going to the export market, and the weaker dollar will cushion the impact for foreign buyers, both of meat and of exported corn. Subsequently he says there is a possibility that cash corn will move into the low to mid-$8 range.
Hurt says the yield on the new crop will be closely watched, and the early planting underway in the Cornbelt is a positive factor. With good weather, Hurt says the new crop may be as much as one billion bushels above the old crop. With strong demand, the carryout would be increased only slightly. However, that strong demand with a marginal crop would keep prices in the $6 to $7 range for the year. Hurt says if yields are either higher or lower than normal, expect volatility; and a 5% shift above or below trend line yield could put corn prices in a swing from $5 to $9 per bushel.
Summary
The actual size of the corn that remains for the balance of the year remains unknown, but could be close to the 18 day supply that is given as 675 million bushels. With additional wheat feeding and 440,000 acres of early planted corn, the livestock industry could get by. And with high gasoline prices in the offing, the ethanol industry could bid higher on corn. Current economics for both livestock and ethanol indicate cash corn could top out in the low to mid $8 range.
Posted by Stu Ellis on 04/12 at 12:00 AM | Permalink