Corn traders will be looking to see whether USDA’s export predictions offset strong feed demand when USDA releases its March World Agricultural Supply and Demand Estimates (WASDE) on Friday.
"Exports have been a drag on the corn market for some time," says Chad Hart, agricultural economist with Iowa State University.
Rich Nelson, chief strategist at Allendale, McHenry, Illinois, expects ending stocks of corn to continue to mount as exports remain soft. In last month’s report, USDA pegged 2012-13 ending stocks at 632 million bushels. This month, Nelson expects that number to rise to 662 million bushels.
International Corn Demand Shifting
"The demand picture is eroding," says Nelson. USDA continues to increase ending stocks, a situation that is expected to persist past the March report. Currently, U.S. corn is carrying a $20/ton premium to South American corn.
"Clearly ,South America offers a much better deal on corn," says Nelson. "People are willing to take the risk of delayed delivery."
The industry will also be watching to see whether domestic feed demand holds up. "Feed demand has been really strong," says Hart. He does not expect feed demand for corn to let up anytime soon.
"Feed costs have come down a little, and meat prices are holding at pretty good levels," says Hart. "Margins look better moving forward, so pork and broiler producers are ramping up." The only livestock sector that is still contracting is beef, he adds.
Nelson, meanwhile, expects USDA to leave domestic feed demand for corn unchanged in the March WASDE report.
"As I look out over the next month, I don’t see a lot of price movement on corn and soybeans until we get closer to planting intentions in late March," says Hart. "Markets are looking for a better crop than last year but still below trend yields," says Hart. "As traders look east, soil conditions are good and trend-line or better yields are possible. As they look west, the drought is ongoing and below-trend yields are possible."
Based on average new-crop futures prices that are near $5.60 to $5.70 per bushels, he calculates a 2013’s average cash price near $5.25.
"Corn supplies could remain tight into next year," says Hart. "We could see $4/bu. or $9/bu. corn, depending on how the weather plays out."