New year, less weakness, higher corn values likely
The new year should see higher corn prices, based on a Southern Hemisphere weather market, a shrinking carryover estimate and seasonal strength.
One factor in the reduction of the U.S. export estimate by 300 million bushels in the second half of 2011 was optimism about the Brazilian and Argentine crops. However, production estimates are declining, based on lack of rain and increasing temperatures in Southern Brazil and Argentina.
The U.S. corn export pace is running 7% behind a year ago, while USDA is projecting a 10% decline. Additionally, corn used for ethanol is on pace to exceed the current USDA estimate by 150 million bushels.
Finally, the seasonal trend in the corn market should lead to steady to higher prices in the first quarter of 2012. In the past five years, the corn market has averaged a first-quarter rally of 12% and declines of 10%.
In 2011, with the stocks-to-use ratio below 10%, as it is this year, corn values rallied 17% from the 2010 close. This would equate to a spring rally near $7.60 basis May futures. While a rally at this level is optimistic, a late winter/early spring rally in May corn of $6.80 to $7.20 is expected.
Despite the prospects of stronger corn values, it’s imperative to remain flexible and avoid emotionally driven marketing decisions. A broader price pattern will remain, which includes occasional price rallies to slow demand, followed by breaks until increased disappearance returns. European economic concerns, though not to be ignored, should become less important, while weather is always at the forefront.