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Thursday, October 06, 2011

Doesn’t Anyone Want My Grain Anymore?



 

For some folks, there were those “good old days” when the value of the dollar kept falling in relation to foreign currencies.  If you weren’t trying to buy fertilizer at the time it was great, because foreign buyers were gobbling up US grain and pushing prices higher.  Yes, those were the “good old days,” because times have changed, and the foreign grain buyers are no longer knocking down the granary door.


Grain prices have fallen and exports have declined.  Those two do not seem to go hand in hand.  Typically, a price decline will build a demand base and grain buyers are part of that equation.  However, Iowa State University grain marketing specialist Chad Hart’s latest newsletter indicates corn exports are down nearly 10% from last year and soybean exports are off 24%.  That is part of a downward price slide, resulting from more grain stocks than were expected to be on hand the first of September.  Exports did not eat up as much as had been anticipated and prices softened as a result.

Hart traces the weakening demand back to the spring, which he says continues, “On the corn side, most of the major corn importers have reduced their purchases thus far. Mexico and China are the only major players that have purchased more corn at this point in the crop year, compared to last year. Japan, South Korea, Taiwan, and Egypt have all pulled back demand by more than 10%.”

Hart tells a similar story for soybeans, where foreign demand is even less pronounced than for corn, “Meanwhile, the export pullback for soybeans is even more widespread. All of the major markets are behind last year’s export pace. Chinese demand is down nearly 10%, accompanying double digit drops in the European Union, Japan, Taiwan, and Indonesia.”

The decline in prices is something that Hart believes will certainly help the demand for US grain by foreign buyers, since foreign competition has been a major dynamic.  The resurgence in production of Black Sea grain, following a drought in 2010, sent many buyers clamoring for the cheaper priced grain from the Ukraine and Russia.  Their stocks have diminished, another moisture shortage has set in, and political leaders are saying exports will be reduced to save enough for the domestic needs.

With the softening of US grain prices, Hart says that should make the US market attractive again to foreign buyers, As we have seen a couple of times this calendar year, China has been willing to dive into the crop markets on the downward price swings. On this latest swing, corn and soybean prices have fallen by over $2 per bushel over the past month. So we’ll see if other countries see this latest downturn as a buying opportunity.”

But Hart also says the slide in US grain prices results from some other reasons.  One of those is the reduced production of ethanol.  He says a trend line on the weekly corn grind for the current calendar year would show a decline.  Hart says some major plants have gone off line for maintenance, as they did in September last year. 

Related to that are the prices for ethanol and gasoline.  Ethanol prices have to be competitive with gas, which has declined in price.  And since corn prices are a function of ethanol, corn prices have declined as a result.  Hart says the first part of 2011 allowed ethanol blending to provide good returns because of a price differential, but that gap has closed and margins have diminished.  The margin is currently equivalent to the blenders’ tax credit says Hart, and if you remember, that will evaporate at the end of the year.  Nevertheless, he says futures prices for 2012 do indicate a margin for ethanol blenders.


Will prices for corn and beans continue to slide?  Hart says the current trend has cut into profit margins for the 2011 crop, but prices for the 2012 crop do show continued margins during the marketing year.  He says the price trend will remain a function of the supply, and if it continues to decline, prices should rebound.

Summary:
Corn and soybean prices have declined for several reasons, among them a reduction in foreign demand.  Part of that is due to competition from the Black Sea.  Corn prices have also declined because gasoline prices have forced down the price of ethanol.  Grain prices should respond to diminished supplies, which attracts foreign demand.

Posted by Stu Ellis on 10/06 at 06:03 AM | Permalink

Comments

One thing not mentioned here is the big soybean crop that Brazil just harvested which has increased competition for U.S. growers as well. Brazil is also expected to increase soybean area again this year and possibly produce another record crop.

Posted by: David at October 6, 2011 8:08AM

Unforunately, corn has a bad rap. It is a versitile grain that allows for the production of many products, yet activists against obesity curse the vegetable for it's sugary by-product. In order for corn to become a popular food and increase the drive to purchase the grain, there needs to be an effective way to market the grain that over powers the negative stigma given by other marketing campaigns. Showing ways that corn is good for people and good for the environment, good for consumption and an overall resourceful product. The campgain would have to overpower those of the current and past negative campaign ads. If somehow we were able to change the nations perspective on grains and not just corn,but on other grains as well. A positive marketing campaign for agricultural products to begin with is a good start.

Posted by: Raylynne Lewis at February 13, 2012 10:10AM

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