Have you looked at a corn market chart lately? You may not want to in fear of depression, but the December 2010 corn futures look tired, and appear like they are headed to bed. The December 2011 futures are already in slumber land, otherwise known as freefall into a period of rest. With Dec 2011 corn at $4.83, and Dec 2010 corn only 31 better, they are a long way from the heady days of $6 when everyone was holding corn in an effort to claim a $6 souvenir on their settlement sheet. Yes, would that not look pretty after such as year as 2010!
But the pain of not being able to realize such a benchmark price, may only be surpassed by the pain that corn users were having to pay, believes Purdue marketing specialist Chris Hurt. He thinks corn prices hit their ouch point right after USDA s November Crop and Supply-Demand Reports, according to his November newsletter. That report pushed the carryover next August down to 827 million bushels and that not only sent the markets higher, but raised the ire of users, such as the Grocery Manufacturers and the National Meat Association which filed suit against the EPA for its recent action to allow more ethanol in gasoline. The corn users feared the high commodity price will put upward pressure on food prices. This made the markets nervous that the government might loosen the ethanol mandate and the growing demand for corn would be vulnerable to reversal.
Chris Hurt also wonders if corn reached the point where users just could not pay any more and began to shift to alternatives in a measure of rationing. He says there is some evidence that exports and feed use may be reduced because of the higher prices, which was reflected in the same balance sheet that indicated ethanol would need 100 million more bushels.
Regarding exports, Hurt says they have slowed since the October Crop Report which saw prices at a level of 60 to 80 less than the November Crop Report. In that time export volume was cut in half, way more than usual for such a report. Because of the nature of export buyers, he says it could be some weeks before the trend is confirmed.
Regarding livestock, Hurt says $5.50 was about as high as livestock producers could pay for cash corn and still breakeven on current meat prices. Following the November report, December corn pushed through the $6 mark and reached 30 above that breakeven point on the futures market. USDA may have seen that coming, and reduced feed use by 100 million bushels. Along with the higher corn prices was a parallel rise in soybean meal prices that also indicated a challenge to profitability for livestock producers.
Regarding ethanol, Hurt says the USDA raised its estimate for ethanol use of corn by 100 million bushels because refining margins have been strong and there is some excess capacity. He notes that such margins may fade and ethanol demand for corn may eventually fall a bit.
Although Hurt assembled his analysis right after the USDA reports and the peak in the corn market, he has correctly predicted the collapse in the corn market in the past week. But will corn continue on its free fall, or will it find market support and stabilize? Hurt says there is a compelling bullish argument because of the 6.2% stocks to use ratio and potential surprises in the Southern Hemisphere corn crop that could both sent prices climbing again. And he said the world stocks of corn are unusually tight.
He says watching for increases in the weekly export sales reports on Thursday and reports of sales to China could both be bullish, but any sign of cutback in livestock production would be a bearish signal to the corn market. And he says if the EPA takes any action that would be averse to increasing ethanol consumption, the corn market would tremble. But he s not looking for any major price collapse because of the global need for US corn over the coming year.
