Given the roller-coaster ride we've had, the million-dollar question is whether we're now in a long valley following a transitory bull market or a temporary setback in what continues to be a strong demand scenario.
"We continue to believe several important characteristics distinguish present-day corn and soybean fundamentals from those of previous high-price periods," says Lewis Hagedorn of J.P. Morgan in Chicago. He calls the three- to nine-month outlook for both bullish, as competition for 2009 acreage heats up. This crop year's corn inventory is relatively low in light of ethanol mandates, and soybean stocks are at risk of a reduction, he says.
Market Strategy columnist Jerry Gulke is not as optimistic, believing the slump could last 18 to 24 months (see Market Strategy).
Our map highlights some pluses and minuses in corn and soybean supply and demand. Balanced out at this time, they don't make a strong case for either another wild bull run or a return to long-term levels of $2 to $3 corn and $6 to $7 beans. Of course, a key wild card still in play is the effect of the worldwide economic slowdown and its impact on demand in both developed and developing countries.
"We continue to believe that the demand-led under-pinnings that led corn and soybeans to recent historic highs remain in place," Hagedorn says. "Even allowing for a more conservative demand estimate in light of slowing global economic conditions, corn and soybeans will struggle to meet demand and allow for inventory restoration." In his opinion, the lower price landscape we are now in will allow users to avoid some previously expected cutbacks.
Ethanol corn use rises 33%, although some say USDA's 4 billion bushels are too high.
• Ethanol producers are hurting.
• Blending is not attractive; gasoline is cheaper than ethanol. Blending credit drops from 51¢ to 45¢ in January.
• New rules in 2009 discourage new plants; they must be able to reduce greenhouse gases 20% versus gasoline. Lack of new plants means we may not meet the mandate.
- DECEMBER 2008