Corn broke out of its recent trading range of 5.05-5.40 this week to close at 5.68. There are a lot of variables impacting the market right now. Ethanol One reason for this week’s rally is that the ethanol grind rate is at its highest level in the last 4 years, while ethanol stocks on hand are at a 4-year low. Profit margins for ethanol producers are currently very strong. Going forward oil prices could impact the margins ethanol producers make and may take corn in the same direction as oil. Fertilizer Another reason for this week’s rally may be that global fertilizer prices are approaching levels almost triple to last year. This is creating some concern that fewer corn acres will be planted in the US. And even if all the acres do get planted, some think less nitrogen will potentially be applied in the US and globally, resulting in potential lower yields. Exports Some traders expect US corn export pace next spring will go higher than last year. If that happens, they say carryout could drop to levels that were expected last May and that corn could trade to $7 again. While upcoming export pace could increase, it might take six months before it is realized. Even then there is no guarantee it would lead to substantially higher prices. Yield The reason that prices would not have to rally significantly is because of yield potential. There is a strong belief that the final national yield will likely be higher than current USDA estimates. Bearish traders are suggesting another 1-2 bushels could be added to the final yield and they believe this will push prices back to toward $5. Natural Gas Natural gas is also impacting corn prices both inside and outside of the US. This week farmers in France were asked to slow the harvest of wet grain because the cost of natural gas to dry it down is too expensive. This has increased the potential for yield loss if the weather doesn’t allow crops to dry in the fields for the next few months. Harvest pace in Ukraine is also slow due to wet grain and high natural gas prices. Current harvest pace there is only 60% of where they were last year. Acreage Battle Since fertilizer is made from natural gas, natural gas prices will greatly impact fertilizer prices. And if fertilizer prices increase, there could be less incentive for some farmers to plant corn, especially if corn prices drop. This could then lead to an acreage battle here in the US next season. While many would say more bean acres could potentially be added in the eastern belt, that may not make sense rotationally in the western belt. It may be more logical for some farmers to keep their grasses and legume rotations the same. One way to achieve that is to substitute corn for another grass. Right now, next year’s prices for oats, milo, winter wheat, spring wheat and even cotton are much higher than normal. And since corn requires more nitrogen than these other crops, natural gas and fertilizer prices in late winter and early spring may impact planting decisions in April or May. South America South America’s weather remains a big wild card and could still heavily impact upcoming price direction. If the current La Nina event in the southern hemisphere does not cause any production issues, then upside price potential may be limited. Historically, the chance for reduced yields due to dry weather during a strong La Nina is high for the corn crop. Lack of Motivation The US harvest is approaching its final weeks. Bin doors are getting locked, and farmers seem uninterested in selling much of their crop any time soon. It seems plausible that a lot of farmers will wait to see what happens with South American weather and spring fertilizer prices before getting too aggressive with crop sales. Bottom Line Corn has a lot of bullish variables that could push it eventually to new highs. However, there are no guarantees any of them will occur and prices could easily drift back to $5. Or there is the possibility that the market will remain range bound for several months until more of the unknowns are known.
Jon Scheve Superior Feed Ingredients, LLC
9358 Oak Ave Waconia, MN 55387 jon@superiorfeed.com
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