The year 2015 was an interesting one for the U.S. corn market and 2016 is unlikely to be much different.
Yields were highly variable in 2015, but in the Western Corn Belt, they were mostly better than expected. In some cases corn yields were the best farmers had ever seen.
These high yields were a great benefit for farmer cash flows. Even with the depressed corn futures and low cash bids, the high yields compensated for them in many cases.
In fact, several farmers report they generated more revenue per acre last year than the previous year from the high yields.
A negative factor associated with the high corn yields is that we have not seen a large amount of demand. Several economists believe the current demand forecast on corn is too high, and needs to be adjusted downward.
Analysts are not only questioning global corn demand, but the domestic side as well. The main number is feed usage which is projected at 5.3 billion bushels.
Recent usage and seasonal tendencies indicate actual feed demand on corn is likely closer to 5.2 bb. At the same time, recent production indicates ethanol demand is too low by an equal amount.
There are also concerns over ethanol demand on corn.
So far this marketing year corn demand has been at or above the volume needed to reach the yearly USDA projected total of 5.2 bb. Actual demand may be 120 to 130 million bushels greater than this though, off-setting other less than expected corn uses.
The strong U.S. dollar continues to pressure commodity exports, especially corn. Right now, corn from South America to the Asian market is trading at roughly a 30 cent per bushel discount to the United States.
Corn from Brazil is the most favorable, as that country has seen its currency weaken at the same time the dollar has rallied. These exchange rates are having more of an impact on trade than the value of the commodity itself.
Debate is increasing over corn values and what impact they could have on this coming year’s acreage. Some analysts have reduced their corn acreage estimates due to low futures and high input costs.
While this may be true, the higher yields that corn has can often make up for lower futures and cash bids. In fact, some areas of the United States are predicting more corn acres due to more favorable weather and soil moisture levels.
A factor that will impact corn plantings more than anything else is local demand. While we may see reductions to demand in some areas, corn demand will not come to a stop.
This is especially true in the heart of the Corn Belt where the majority of the United States’ ethanol is produced. The same goes for corn feeding in this region, as logistics to receive other feed grains makes most of them uneconomical to use.
One positive side of this is that the market has absorbed nearly all of the negative news it can. While we are not receiving enough fresh news to instigate a market rally, we are not seeing additional losses. What is quite possible is that we could see the range bound market we have become accustomed to lasting for several more months.
This does not mean we will not have opportunity to market today’s crops at profitable levels, but what is more likely is that windows of opportunity will be narrower than we are accustomed to. In such a market environment, farmers need to develop a marketing strategy that fits their own farming operation and stick to it.
Karl Setzer is a commodity trading advisor/market analyst based in the West Bend office of MaxYield Cooperative. He can be reached at (800) 383-0003.
The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.
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