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Corn bulls vs. bears into early 2014

Jeff Caldwell 11/27/2013 @ 1:26pm Agricultural content creator and marketer.

Who's going to win the tug-of-war in the corn market? There are supply and demand factors that could potentially support both the bulls and bears, but the latter likely has a slight edge, one economist says this week. But it will be anything but a one-sided affair.

A common refrain in the corn market in the last few months is an expected longer term decline in prices, mainly due to a large U.S. crop this fall and questionable demand both at home and overseas. That's not been all that consistent, however; there have been occasional peaks in the decline, spawned by projections for things like higher livestock feed demand and potential demand growth on the global market.

Then come reports like the one this week showing evidence that interest rates won't necessarily rise a lot in the coming year, but their slide will likely grind to a halt. That's got some major implications for ag financing, especially for big-ticket items.

Though there will likely continue to be some volatility (though not as much as the last few years), look for the bears to more often than not come out on top. One way or another, though, prepare yourself for altogether tighter grain margins than in the last few years, says University of Tennessee ag economist and ag policy expert Daryll Ray.

"While a year ago corn crop prices and crop insurance protection levels were well above the cost of production, for many — if not most — corn farmers, the Friday, November 15, 2013, nearby futures closing corn price of $4.22 is likely below the full cost of production," Ray says in a university report. "In this situation, a slight increase in the final production number or a modest decrease in utilization could have serious consequences for corn farmers and by extension other crop farmers if the prices of the other crops follow corn on a downward path. All it takes is a 100 million-bushel increase in the year-ending corn stocks for the 2013 crop to increase the stock-to-use ratio to 15.3%. An increase of this size or greater could easily be in the offing and send price downward."


A case for the bulls

In this new age of tighter margins forming for grain farmers, there are reasons to believe not everything will bearish. First, there's an expected increase in grain export volume. Ray says the year-over-year export increase from 2012 to 2013 -- a sizable one -- could continue into the next year, but it will take some major market dominance for that to happen.

"The USDA is projecting that corn exports will essentially double from 731 million bushels shipped out of port in the 2012 crop year to 1.4 billion bushels for the current crop," Ray says. "For that to happen, the U.S. would have to capture 90% of the increase in worldwide corn exports, even as the non-U.S. production of grains -- including corn and other feed grains -- is projected to increase by 5%."

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