Corn prices finally reached $5 again, but couldn’t rally much higher even in light of tight supplies.
USDA surprised traders this week by showing a much-tighter picture of corn ending stocks. On Wednesday, April 9, USDA increased projected corn exports by 125 million bushels and reduced corn ending stocks to 1.331 billion bushels, well under the expected 1.403 billion bushels.
"The market responded quickly to the bullish report and rallied from down low to higher, but then didn’t get any higher," says Jerry Gulke, president of The Gulke Group. "As our fundamental conditions change, the market realizes that previous prices were too cheap."
On Friday, April 11, May 2014 corn closed at $4.98 and December 2014 corn closed at $4.99.
Hear Gulke's full audio analysis:
"It was not a negative reaction to a positive report," Gulke says. "I think the market just stepped back to find a reasonable value for things. We now know we don’t have 2.2 billion bushels left over, we have 1.3 billion bushels."
The good news is, Gulke says, that the market has now established that $4 corn can be merchandised. "We can feed it, export it or make it into ethanol," he says.
For 2014, USDA expects 91.7 million acres of corn. Will the recent increase in corn prices pull that number higher? Gulke says it’s not likely.
"The market just isn’t interested in keeping a decent price in front of me even when it’s cold and wet out," he says. "What will prices do if the weather turns good? For me to switch back to corn after I’d been planning to go with beans is probably a tall order."
Gulke says Friday’s price action seems to be telling farmers that planting more acres won’t take prices above $5. "I think we have to get prices a lot higher, quickly, to get more acres of corn. Right now the market has not given me an incentive to go back to corn," he says.