Corn price watch

Farmers have a lot on the line this year. Land rental rates are at all-time highs and other inputs such as fertilizer and seed are also at their highest levels since records have been kept. As we move into the new year, the biggest question isn’t necessarily about the high input costs or the possibility of a continuing drought. The real question is whether or not the cracks appearing in the foundation of corn’s demand are enough to send the whole thing crashing down.

We have a lot to be thankful for this year. Crop yields in our area were pretty solid given the fact that we had very limited rainfall during much of the months of June July and August. Late August rains help rescue a lot of the soybeans and did help the corn somewhat. At any rate, most farmers had their expectations surpassed by what actually ended up in the combine hopper. However, there are concerns about what might happen out there and if they all come together in 2013, we could see greatly reduced demand from a market that set record high prices in August of last year.

December USDA reported that domestic ending stocks of corn would be 647 million bushels of corn. Sounds like a lot of corn, but actually these would be the lowest numbers since 1995-96. Global stocks of corn are at the end of 2012 stand at 117.61 metric tons. This includes projections of what we are seeing as solid production numbers in South America. These numbers may be challenged as the growing season in South America season moves on. Again, these numbers are the lowest since estimates that put the 1973-74 corn crop at lower levels.

So these numbers would certainly indicate a strong bull market for corn in 2013, correct? The answer lies in the nature of the statistics. All of the above numbers are supply issues. The real question is the demand for corn in 2013. Global demand for corn in 2012 saw the first decrease in 19 years. Most of this decrease in demand occurred in the United States. The heart and soul of corn’s demand market is the Renewable Fuels Standard established in 2005. Fundamentally, this was the trigger that re-established both seasonal tendencies (corn’s chart now closely follows the one for crude oil and gasoline) and long-term price distribution tables. The drought of 2012 heated up the debate over imposing a waiver in times of short supply, something that could be passed by the EPA if the U.S. is faced with another drought-reduced crop in 2013.

The other two major factors of domestic demand, feed and exports, are also coming down due to tight supplies created by a third consecutive year of disappointing yield and production. Projected feed demand is projected to be the lowest since 1988, and current export demand is projected to be the lowest since 1974-75. Speaking of exports, other world producers such as Brazil, Argentina and Ukraine are lining up to take some export business away from the U.S. if their weather patterns are favorable.

Right now American farmers are projected to plant a record amount of corn acre in 2013. If favorable weather return and we see better yields in the rest of the U.S. Corn Belt, we could see a pattern of increasing corn supply and decreased corn demand. This would have a negative effect on corn prices.

The drought of 2012 was a major factor in increased corn and soybean prices. However, the world market has started to make adjustments to purchase commodities from other sources. Time will tell what the consequences will be.

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