What is in this article?:
- USDA corn estimates will pressure prices
- Demand side much different
• Both the June 1 estimate of corn inventory and the planted acreage estimates caught the market by surprise in a very bearish way.
With the release of USDA’s June Grain Stocks and Acreage reports comes a fundamental shift in the corn market, suggesting that corn prices will come under considerable pressure, according to University of Illinois agricultural economist Darrel Good.
“Both the June 1 estimate of corn inventory and the planted acreage estimates caught the market by surprise in a very bearish way,” Good said. “The June 1 stocks number estimated at 3.67 billion bushels is 350 million bushels more than the average trade guess and implies that we have slowed our consumption of corn for feed in residual use. We’ll have to wait until the September report to reconcile the numbers, but on the surface we’ve got a lot more corn on hand than the market anticipated.
“Year-ending stocks will also be larger than what has been projected. The planted acres number of 92.3 million is about one and a half million more than the average trade guess and a surprising 100,000 acres more than indicated in the March planting intentions report,” he said.
Good said that even with some lost acres due to flooding, so that there will be a slightly smaller percentage of planted acres than normal — 84.9 million projected to be harvested — that now projects to a fairly large crop.
Producers are now faced with prospects for a large corn crop and prices that will likely slide. Just how far prices will fall is the question.
“Assuming that the growing season continues without any widespread severe, threatening weather, and the market starts thinking that we’ll have a 160-bushel yield on corn, I think we’re going to see a gradual decline in corn prices right into harvest,” Good said.
“Obviously that could get interrupted with some weather problems, but if it doesn’t, I’d say we’re on a downward trajectory right into the harvest period.”
Good said it’s difficult to predict how low corn prices will go and noted that corn is still about $3 higher in the spot corn market than a year ago.
“But this new information does suggest there is considerable downside risk for corn. Even though we’re seeing substantial sell-off immediately following the report, there may still be some opportunity to add to sales,” he said.
In 2007, the price of corn rallied in the fall. Could that happen this year?
“In 2007 and into 2008, we were on an upward movement in terms of consumption of corn,” Good said. “The ethanol industry was still expanding rapidly in terms of its consumption of corn. We just don’t have that situation now. I think consumption has plateaued for all of our domestic markets and perhaps exports as well.