Months of speculation about demand destruction may soon be coming to fruition as supplies continue to shrink at the same time corn prices drop. This is leading end users to become increasingly concerned. While prices may remain historically high for the short term, the long term prospects become increasingly questionable, says Jerry Gulke, president of The Gulke Group.
"You don’t want to have buy demand, because then prices will go a lot lower than even I anticipated even 30 days ago."
Nowhere is this more evident than in Gulke’s home state of North Dakota where there are new customers for corn. Normally, new customers would be celebrated, but this is a result of a shift in normal market channels in traditionally corn-exporting areas.
"In North Dakota the elevators used to sell Canada corn, but now the elevators in North Dakota are buying corn out of Canada and shipping it to ethanol producers. They’re feeding the wheat in Canada. This thing about feeding wheat worldwide can’t be underestimated. It’s there and it’s profitable, or at least less negative to do that."
Click here for the full Gulke interview on corn markets.
And the number of cows eating that wheat are quickly decreasing as herd liquidation continues in drought ravaged areas of Texas and other areas of the southwestern United States.
"That tells you that you are permanently destroying demand. No matter how low the price is going to go, you’re not going to be able to feed the baby calf of that cow you culled. This is serious stuff, if we’re going to do that. We need to hammer that pretty quick and give the end user some confidence that cheaper prices are here for a while."
Click for Gulke's comments about lagging soybean exports.
Close attention will continue to be paid to the U.S. corn harvest this year as USDA’s September Crop Report per-acre yield estimates were nearly 5 bu. below it’s August estimates. With most analysts, Gulke included, anticipating lower harvested acreage due to flooding and drought, the average yield can’t afford to get much lower.
"My gut tells me that we’ve seen the low on the average yield. If USDA would have called me personally, I would have said this crop is really bad. We may have low balled it by accident. But we are starting to see some reports coming in from central Indiana and central Illinois and it’s coming in maybe 20 bu. better than we thought. There is some good corn out there, and of course the market will hear that and take it as a negative."