What is in this article?:
• While the corn market sentiment seems to have become very negative for price prospects over an extended period, the futures market is actually offering higher prices for the 2014 crop than for the 2013 crop and even higher prices for the 2015 crop.
HIGHER CORN PRICES next year and beyond would have to come from some combination of reduced foreign production, smaller U.S. crops, or increased demand for corn.
Price reflects storage costs
This price structure reflects the cost of storage and encourages consumption sooner rather than later. However, theory suggests that the price structure should reset beginning with prices for delivery of the 2014 crop and again with prices for deferred crop years. That is, if supplies are expected to be abundant again next year, December 2014 futures should be near the price of December 2013 futures with deferred prices within the 2014-15 marketing year reflecting a carry.
That pattern should be repeated for the 2015-16 marketing year. The reason, then, that prices do not reset in the manner described is that the market expects the price level to be different next year than during the current year.
In the current case, the market is anticipating prices to move higher next year and to remain higher than current prices for the next three years. The price structure seems to be at odds with general market sentiment.
Higher corn prices next year and beyond would have to come from some combination of reduced foreign production, smaller U.S. crops, or increased demand for corn.
Increased demand is not synonymous with an increase in consumption associated with lower prices. Instead, increased demand is defined as the willingness of end users (domestic, foreign, or both) to consume more corn at a given price, or conversely, to pay higher prices for a given level of consumption.
The question then, is it realistic to expect any of these conditions to unfold?
The generally high corn prices since 2006 have stimulated an increase in foreign corn production. The USDA estimates 2013-14 foreign production to be 46 percent larger than production in 2005-06.
Based on historical production responses, corn acreage outside the U.S. may stabilize following the recent decline in prices, but a substantial reduction in acreage would not be expected. If that is the case, reduced production would have to be the result of poor weather and lower yields.
It is likely premature for the market to expect widespread poor yields in 2014, particularly with generally favorable weather conditions in South America. Some increase in corn demand outside the United States, associated with population and income growth, seems to be a reasonable expectation.