The Corn Market: Rationing is either upon us or around the corner
(University of Illinois) -- Corn futures are pushing toward the $8 mark. The good news is you don’t have to sell 4 bushels to get $8. The bad news is some farmers may only have four bushels to sell. Nightmares have come true for many farm operators across the Cornbelt, as they watch crops drown and their topsoil wash down rivers that used to be miles away. Little to nothing can be done except the aftermath paperwork. But for the corn market, the headaches have only begun.
Purdue economist Chris Hurt says we only have to follow the 1993 row marker when the last 500 year flood arrived. In his June 11 newsletter Hurt says yields were ultimately reduced by 18% from planting expectations and that would mean a 127 bu. national average this year when the trend yield was 30 bushels higher. Also, 6.3 million acres were abandoned to the flood. Hurt says a 142 bushel average applied against 76 million harvested acres only produces 10.8 billion bushels compared to the 13 billion bushel crop last year and the expected ethanol consumption of an additional 1 billion bushels.
If we are short 3-4 billion bushels of corn, University of Illinois economist Darrel Good says that means rationing. In his June 16 newsletter Good says the 1993 crop saw exports decline 20% and feed use declines an average of 11% in short crop years of recent vintage. He says USDA is projecting a consistent decline in use as a result of the expected short crop this year. Feed use will be down 16%, exports will be down 21%, but domestic consumption is expected to increase 33% with the help of ethanol taking 1 billion bushels more than in 2007.
Hurt says the ethanol estimate really depends upon oil prices and corn prices. He calculates a $1 loss per bushel currently and some plants are already in a slow down or shut down phase. One help may be a 32% increase in consumption of DDGS, which Darrel Good expects because of high corn prices.
As we move toward the June 30 Planted Acreage Report, Good says the data has already been collected, and there may still be some corn replanted or beans planted that the report does not reflect. He also says harvested acreage will also be tough to calculate because of the flooding and ponding. He believes “A fair amount of crop loss and demand rationing are already priced into the corn market with December 2008 futures approaching $8. The worst of the crop stress may have passed and more favorable growing conditions are forecast. Corn prices may now moderate somewhat, at least until more is known about crop size.”
However, Hurt says we are in an explosive price environment, with the potential for July futures to reach $8.50. However, he says a drying pattern is forecast by the National Weather Service, leading to a near term peak in prices this week. If prices are at a breaking point with downside potential, you’ll be interested in the thoughts of South Dakota State University economist Alan May, who says you know your expenses, and they should be written into your marketing plan. In his June 10 newsletter he says, “If current offerings of new crop bids on corn mean profit for you, there is nothing wrong with making sales now. Remember that with every sale of new crop corn you make, you give up something (the chance for a higher price) to get something else in return (protection against lower prices).”
Summary:
Rationing is either upon us or around the corner for the corn market. With the loss of several million acres of corn, and crop quality declining in the face of adverse weather, US production this year may be closer to 10 billion bushels than the 14 billion that is needed to meet full demand. Cornbelt marketing specialists believe ethanol producers will get the corn they want as long as oil prices remain high. That means livestock producers will get shortchanged along with importers, unless the US dollar weakens further. But for corn growers, cash prices are quite attractive and will yield a profit for producers who have a marketing plan.
Purdue economist Chris Hurt says we only have to follow the 1993 row marker when the last 500 year flood arrived. In his June 11 newsletter Hurt says yields were ultimately reduced by 18% from planting expectations and that would mean a 127 bu. national average this year when the trend yield was 30 bushels higher. Also, 6.3 million acres were abandoned to the flood. Hurt says a 142 bushel average applied against 76 million harvested acres only produces 10.8 billion bushels compared to the 13 billion bushel crop last year and the expected ethanol consumption of an additional 1 billion bushels.
If we are short 3-4 billion bushels of corn, University of Illinois economist Darrel Good says that means rationing. In his June 16 newsletter Good says the 1993 crop saw exports decline 20% and feed use declines an average of 11% in short crop years of recent vintage. He says USDA is projecting a consistent decline in use as a result of the expected short crop this year. Feed use will be down 16%, exports will be down 21%, but domestic consumption is expected to increase 33% with the help of ethanol taking 1 billion bushels more than in 2007.
Hurt says the ethanol estimate really depends upon oil prices and corn prices. He calculates a $1 loss per bushel currently and some plants are already in a slow down or shut down phase. One help may be a 32% increase in consumption of DDGS, which Darrel Good expects because of high corn prices.
As we move toward the June 30 Planted Acreage Report, Good says the data has already been collected, and there may still be some corn replanted or beans planted that the report does not reflect. He also says harvested acreage will also be tough to calculate because of the flooding and ponding. He believes “A fair amount of crop loss and demand rationing are already priced into the corn market with December 2008 futures approaching $8. The worst of the crop stress may have passed and more favorable growing conditions are forecast. Corn prices may now moderate somewhat, at least until more is known about crop size.”
However, Hurt says we are in an explosive price environment, with the potential for July futures to reach $8.50. However, he says a drying pattern is forecast by the National Weather Service, leading to a near term peak in prices this week. If prices are at a breaking point with downside potential, you’ll be interested in the thoughts of South Dakota State University economist Alan May, who says you know your expenses, and they should be written into your marketing plan. In his June 10 newsletter he says, “If current offerings of new crop bids on corn mean profit for you, there is nothing wrong with making sales now. Remember that with every sale of new crop corn you make, you give up something (the chance for a higher price) to get something else in return (protection against lower prices).”
Summary:
Rationing is either upon us or around the corner for the corn market. With the loss of several million acres of corn, and crop quality declining in the face of adverse weather, US production this year may be closer to 10 billion bushels than the 14 billion that is needed to meet full demand. Cornbelt marketing specialists believe ethanol producers will get the corn they want as long as oil prices remain high. That means livestock producers will get shortchanged along with importers, unless the US dollar weakens further. But for corn growers, cash prices are quite attractive and will yield a profit for producers who have a marketing plan.