Corn prices to struggle until spring
Corn closed unchanged on the day and 23-cents higher on the week. Soybeans closed 3-cents lower on the day and 32-cents higher on the week. Wheat closed 7-cents higher on the day and 42-cents higher on the week. Since the report, fears over vomitoxin in the corn crop (esp. DDG's) and good export sales helped rally soybean meal and soybean prices late in the week. Although there have likely been issues with vomitoxin in some of the Eastern Corn Belt, we do not feel that this is a major concern.
Tuesday's report came with little surprises. The national corn yield was lowered slightly to 162.9 bu./acre. This helped lower the ending stocks estimate to 1.625 billion bushels. With only 25% of the national crop harvested on Nov.1 (when the estimates were made) and the next production estimates not until January, there are worries that the next estimate could be smaller. These concerns combined with "new money" have helped boost corn Open Interest by 200,000 contracts in the past 2 months! This incredible buying combined with a very slow harvest pace is the MAIN driver of corn prices at this time. Going forward, we will need to see how the second half of the corn crop yields. So far, yields have been better than expected in many areas and disappointing in others. Many producers west of the Mississippi have report record average yields while many in the east have seen yields below average. This uncertainty has kept many speculators from selling the market. The high moisture and slow harvest has kept many producers from selling the market. With 200,000 new longs entering the market, it has been hard to find enough selling to accommodate them. So now what? So far, all of the attention has been on the supply side of the equation (and rightfully so). With most farmers concentrating on soybean harvest, soon most farmers will be focusing on corn. Unless the crop declines sharply, the market will start to focus on demand. In our opinion, the USDA has already written down the largest demand estimates for the year. Ethanol demand being the exception, demand for all sectors looks overestimated at least at current price levels. Exports have slowed considerably as South American corn and Black Sea feed wheat have priced themselves for business. Good (wheat) grazing conditions in the Plains will delay corn feeding until next spring in many areas. Strong ethanol production has also increased the amount of DDG production. Cheap DDG prices and high corn and soybean meal prices have caused many feeders to increase their DDG rations. There are some real positives (strong ethanol margins in the U.S., Relatively tight global stocks, declining acres in South America and increased investment money) and some real negatives (decreasing feed and export demand, increased harvest pace, and additional acres in U.S. next spring) for the corn market. We believe these factors will keep corn prices in a wide trading range until next spring. We expect corn prices to struggle over $4.20 and under $3.20 until next spring. Low production costs and an increase in available acres (an estimated 3 million out of CRP, and up to 3 million less winter wheat) makes $4.40 2010 corn look expensive. Our next selling recommendation is $4.49 December 2010 futures and this will put us up to 40% sold and in a strong position heading into the new season.