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Nail in the coffin

Agriculture.com Staff 01/16/2009 @ 11:50am

January's Supply and Demand report, typically not known for big surprises, somewhat shocked the corn market with a significant increase in carryout. This immediately dropped corn prices nearly 50 cents in two sessions.

With the market gaining some upward momentum the second half of December and the first half of January, it was hoped that a neutral report might allow more for a fight for acreage between corn and beans. However, when the report numbers were released, the shockwave hit the market indicating a significant decrease in demand, along with a small increase in yield. This was enough to suggest carryout is now in the comfort zone and that end users will unlikely be rushing to secure long term inventory.

The return to just-in-time inventory management by end users will gain support due not only to expectations for ample inventory but also on continued economic concerns. January's report confirmed, despite all the challenges this past year's corn crop faced, yield averaged 153.9 bushels per acre, more than 2-1/2 bushels from last year's 151.1 and 1/10 of a bushel higher than the December figure. Production increased from 12.02 billion to 12.101 billion. On the usage side, cuts across the board were seen. Food for industrial use dropped from 1.335 billion to 1.3 billion, down 2.6%. Ethanol dropped from 3.7 billion to 3.6 billion, and feed dropped from 5.350 billion down to 5.3 billion. Lastly, exports dropped 50 million bushels down to 1.750 billion, or 28% less than a year ago. The stocks-to-usage figure came in at 15% above last year's 12.7%. All numbers had a negative tone, and the market reacted as such.

The potential silver lining is that lower corn prices could spur demand and, in the long run, this could mean less projected carryout. However, carryout estimated at 1.790 suggests that, if acreage is reduced 5 million acres, at an average yield of 155 million, that still leaves a carryout of over 1 billion bushels. While that is a tight figure historically and may warrant a price recovery, the market will likely still struggle to sustain rallies. It appears highly likely, at least at this point, that farmers will have a propensity to plant more soybeans based on this year's cost structure as well as price comparisons. This could be supportive as well.

It is only January, and one could argue that the corn market may see some significant volatility in the year ahead, so for producers it is not time to panic. On the other hand, it seems likelier that end users will be less than aggressive buyers, and that sustaining upward rallies will be more of a challenge this year than at any time in the past three. Nonetheless, stay alert. Look for opportunities but, at the same time, recognize that high volatility and price, while possible, is not as likely in 2009 as it was last year.

If you have questions or comments, contact Bryan Doherty at Top Farmer, 1-800-TOP-FARM ext. 129.

January's Supply and Demand report, typically not known for big surprises, somewhat shocked the corn market with a significant increase in carryout. This immediately dropped corn prices nearly 50 cents in two sessions.

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