Corn Futures Aiming for $6/bu.
Feb 25, 2008 4:50 PM
Source: Corn and Soybean Digest Magazine
July 2009 corn futures blew past the $5.50/bu. price ceiling last week and traded in all-time-record territory, hitting a high of $5.67 1/2, where it settled on the Chicago Board of Trade (CBOT) open auction platform on Thursday. This recent strong surge in prices is prompting speculation about the potential for $6 corn futures prices, but for now it remains just that -- speculation.
"Farmers who still have corn unsold are sitting on a gold mine," says Michael Woolverton, Kansas State University (K-State) agricultural economist. "They might want to think strongly about selling a portion at these high prices. A lot have already sold a good portion of their 2008 crop, but I would advise farmers to sell ahead only the amount that they can cover with crop insurance."
Are $6 corn futures attainable? Maybe, maybe not, says Woolverton. He points to two USDA reports that could move corn prices either higher or lower. The first is the National Agricultural Statistics Service 2007 county estimates report for corn and soybeans, which will be released on March 6. The second is the March 11 World Agricultural Supply and Demand Estimates (WASDE) report.
"If we see less production in the county report than previously estimated, it would lower the USDA's corn usage numbers and be very bullish for corn," says Woolverton. "If it shows more corn production than expected, then it would help take some pressure off the corn markets and moderate prices somewhat."
The WASDE report could also swing corn markets either up or down, depending on grain stocks and use data, he points out. "This will be the one report that people are going to be watching very closely to look at carryover ahead of planting," he says. "Wheat is already at a 60-year carryover low, soybeans are close to the minimal carryover needed for the year and the carryover for corn is getting worrisome as well."
At this time last year, corn carryover dipped to about 12% of usage, says Woolverton. Corn stocks are even tighter now, with carryover at about 11% of usage, he adds.
"Exports have been well above what anyone imagined for this marketing year," he explains. "Usually, corn exports run about 2 billion bu./year. This year, USDA projects corn exports to be 2.45 billion bu."
As prices move higher, however, usage will likely slow. "We may be nearing the point where prices will start to ration use," points out Woolverton. "So, we may see some softening of demand ahead."
The ethanol industry is one end user that is likely to scale back production at current or higher corn prices, he points out. "Ethanol profit margins went down last week to a negative 8 cents/gal loss," says Woolverton. "The ethanol price has been stuck at about $2.10/gal. for the past two weeks, even with the recent increases in oil prices."
On the other hand, current profits from distiller's grains has more than offset the industry's losses in ethanol, he points out. So, unless livestock feeders start to cut back, the ethanol industry may still be able to operate at the current high corn prices, and continue to buy corn at current levels, he adds.
Which way the corn futures markets will go and how much impact the upcoming USDA reports will have on prices are anyone's guess, sums up Woolverton. Still, "it's taken quite a while for corn prices to go up this high," he emphasizes. "If this market turns bearish, prices could go down really fast."
To read more information about the current grain market outlook from K-State specialists, see http://www.agmanager.info/marketing/outlook/newletters/.
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