Corn futures dropped last week in search of demand, and likely came close to finding it.
“We're absolutely seeing evidence that our corn is priced too high if we're gong to compete in global trade,” said Scott Harms, a risk specialist with Archer Financial Services, Chicago.
“That evidence showed up yesterday,” he said. “We sold only 8 million bushels of corn last week.”
USDA's weekly corn export sales report Thursday morning showed net exports of 8.2 million bushels. That marked the low since the end of August and less than half the volume of weekly sales in November last year. Export shipments since Sept. 1 are off nearly one-fifth from a year ago, but outstanding export sales for this year are up nearly 16%, reports USDA.
Analysts have been expecting exports to be off. USDA projects exports at 1.6 billion bushels, down from 1.84 billion last year and 1.98 billion in 2009-10.
The projected exports would set a nine-year low, noted University of Illinois economist Darrel Good in a Nov. 14 outlook release.
“Exports have been less than 1.6 billion bushels only six times in the past 36 years,” he reported. “Through Nov. 10, the pace of weekly export inspections continued to run well below the average pace needed to reach the USDA projection.”
Harms figured the export report provided the market trigger this week. “Once the market broke to the downside, it was exacerbated by technicians leaning on the market,” he said.
However, he said he thinks prices are close to drawing more demand.
“We are already competitive with Chinese cash corn,” said Harms. “If China is going to buy, it makes sense for them to take advantage of this break.” U.S. corn prices also are about on par with Black Sea grain markets, and Harms doesn't expect Black Sea prices to decline.
Support from Ethanol
Slack export sales may have triggered this week's price drop, but domestic demand is providing a strong base of demand.
“I think there is a lot of demand for ethanol,” said USDA ERS economist Thomas Capehart. “We're seeing oil go above $100 this week. That's certainly going to boost the ethanol situation.”
In the week ended Nov. 11, the December futures ethanol-corn crush margin rose 3.4 cents to 36.6 cents per gallon, reported the CME Group. With distillers dried grains included, the crush margin gained 3.4 cents to 72.9 cents per gallon, said the CME in its weekly Ethanol Outlook Report.
Energy markets rallied early Friday, then fell, leading to another wave of corn selling, noted Darrell Holaday, Country Futures, Frankfort, Kan. Even though crude oil and unleaded gasoline markets weakened, ethanol values continued to climb, he noted in a Friday afternoon commentary.
“The ethanol margins are extremely good and we are burning through a lot of corn,” added Holaday.
Capehart at ERS said the WASDE projection for 2011-12 ethanol corn use at 5 billion bushels may be conservative, depending on oil prices.
“The biggest question is where the export market is going for ethanol,” said Capehart. Exports have been increasing in recent months and Brazilian sugar is tight. U.S. ethanol exporters may ship more to the European Union and to Brazil and Brazilian sugar-based ethanol may be shipped to California.
Tight Stocks, Range-Bound Prices
Projected domestic corn use is not far below last year's demand at 11.01 billion bushels, compared with 11.22 billion last year and 11.09 billion in 2009-10. USDA projects corn ending stocks at 843 million bushels, of from 1.13 billion last year and 1.71 billion in 2009-10.
“It's a tight market,” said Capehart. “There’s going to be some rationing.”
Harms noted that domestic profit margins are at three-year highs for ethanol producers, and cattle, hog and even chicken producers are pleased with current profit margins. “So domestically we are chewing through supply,” he said.
He said March corn futures are range-bound, roughly from $6 to $7/bu. Many factors – European debt, the MF Global bankruptcy, South American weather, and more – will push prices around in that range.
“I believe it's a great opportunity for end users to take advantage of this weakness,” said Harms. And for producers who want to make cash sales, he added, “Basis levels are awfully firm yet across the country.”
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