Market pressure drops prices
Corn market expects large supply, weak demand
URBANA, Ill. (University of Illinois) – Corn prices have come under renewed pressure, with a decline of nearly 20 cents in futures prices over the past week.
Those prices are now at the lowest level since October 2014.
According to a University of Illinois agricultural economist, old-crop basis continues to strengthen seasonally in most markets.
“Low corn prices appear to reflect expectations for a combination of prolonged demand weakness and another year of ample supplies,” said Darrel Good.
Good explained that expectations for demand weakness center on the ethanol and export markets.
“It is generally argued that plateauing domestic ethanol consumption, a stronger dollar that could favor ethanol imports and discourages exports, and low crude oil prices will limit the price of ethanol and the demand for corn,” he said. “Similarly, abundant world grain supplies and a stronger dollar are expected to create a weak demand environment for U.S. corn in the world market.
“In contrast, domestic feed demand for corn should be supported by ongoing expansion in livestock and poultry numbers, even with some loss of poultry numbers to bird flu.”
The supply of corn for the 2015-16 marketing year will consist of carryover supplies of old-crop corn and the 2015 harvest. The USDA currently projects the carryover of old-crop corn at 1.827 billion bushels.
“The near-term focus will be on yield prospects for the 2015 corn crop,” Good said. “For now, commentary will focus on the rate of planting progress and yield potential,”?Good said.
All else equal, the larger percentage of the crop that is planted in a timely fashion, the higher the U.S. average yield potential. However, all else is rarely equal, with the magnitude of yield ultimately determined by summer weather. The generally late planted crop of 2009, for example, experienced a new record yield while the extremely early planted crop of 2012 experienced the lowest yield in 17 years.”
According to Good, unless an unusually large or small percentage of the crop is planted late this year, yield expectations should continue to focus on trend value in the range of 164 to 165 bushels. The USDA will report an expected yield in the May 12 World Agricultural Supply and Demand Estimates (WASDE). That yield expectation is based on a weather-adjusted trend model that reflects expected planting progress at mid-May.
“Uncertainty about the size of the 2015 corn crop will continue for the next few months,” Good said. “Similarly, the strength of corn demand will be revealed over time. In addition to the weekly pace of exports and ethanol production, the USDA’s estimate of June 1 stocks that reveals third-quarter feed and residual use will be important indicators of demand strength. The expected June announcement by EPA in regard to biofuels mandates will also be potentially important for corn demand. Current prices appear to reflect minimum production risk and surprisingly weak demand prospects,” he said.
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