Corn Price Fade may be too Early
The price of corn has dropped because the trade believes there will be plenty of it around. Farmers, generally, are not convinced that will be the case, at least east of the Mississippi River.
The price of corn in Chicago increased about $0.90 per bushel from mid-June to mid-July. The increase was driven by a combination of a smaller-than-expected USDA estimate of June 1 stocks and production concerns stemming from record June rainfall in much of the eastern Corn Belt. Over the past two weeks, corn futures prices have declined nearly $0.80 per bushel as production concerns have subsided. Today the trade thinks, based on price, the amount of corn available for the next year will be more than needed.
There are couple of ways this could change. University of Illinois Agricultural Economist Darrel Good says a tighter supply and demand balance sheet for the coming year could be generated by a tighter supply of old crop corn carried into that new marketing year.
The price of corn in Chicago increased about $0.90 per bushel from mid-June to mid-July. The increase was driven by a combination of a smaller-than-expected USDA estimate of June 1 stocks and production concerns stemming from record June rainfall in much of the eastern Corn Belt. Over the past two weeks, corn futures prices have declined nearly $0.80 per bushel as production concerns have subsided. Today the trade thinks, based on price, the amount of corn available for the next year will be more than needed.
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| CME Group December Corn Futures - Daily Chart |
Darrel Good - Based on the current pace of ethanol production, for example, the use of corn for ethanol production during the current marketing year (ending August 31) could be about 10 million bushels more than the current USDA projection of 5.2 billion bushels. Similarly, exports could be slightly larger than the projection of 1.85 billion bushels if Census Bureau export estimates for June, July, and August exceed the USDA export inspection estimates as was the case in the first nine months of the marketing year. However, for carryover stocks to be lower than the current projection of 1.79 billion bushels by enough to meaningfully alter the 2015–16 supply and demand balance would require larger than expected feed and residual use of corn during the final quarter of the marketing year.This won’t be known until the Grain Stocks report is released September 30th. A tighter supply and demand balance sheet for corn could also result from larger than expected consumption during the year ahead. Such a development would obviously take time to unfold, but opportunities for consumption to exceed the current projection appear to be limited thinks Good. This leaves the size of the crop in the ground as the primary lever by which prices might be pushed higher.
Darrel Good - The trade's average yield expectation appears to be near 165 bushels, 1.8 bushels less than projected in the July 10 USDA WASDE report. The August production forecast will also reflect the estimate of harvested acreage, but a large change from the June acreage forecast is not expected. Based on the projection of 81.1 million acres harvested for grain, a yield of 165 bushels would result in a crop of 13.38 billion bushels, about 150 million bushels less than projected in the July WASDE report. Still, if 2015–16 marketing year consumption is near the current USDA projection of 13.735 billion bushels, year-ending stocks would be abundant at about 1.45 billion bushels. On the other hand, a yield forecast of 161 bushels or less would likely be sufficient to push prices back to the mid-July highs.Recent corn price declines indicate, says Darrel Good, that the market is removing the production risk premium from the price structure in anticipation of another year of surplus. The question is whether that removal is premature. The USDA’s Crop Production report to be released on August 12 will contain the first survey-based yield and production forecasts for the 2015 crop.