Dwindling Stocks Show Corn Prices Need to Move Higher

March 31, 2011 06:39 AM

USDA’s quarterly Grain Stocks report, released this morning, shows that end users of corn have yet to cry “uncle.” Corn stocks in all positions as of March 1 were 6.52 billion bushels, down a sharp 15 percent from March 1, 2010, and well below the average trade guess of 6.69 billion bushels.

“Ethanol usage and feed usage has been better than what the trade factored in,” says Brian Hoops, analyst with Midwest Market Solutions, Yankton, S.D. “Feed and ethanol do not react to prices as quickly as exports. We need even more acres this spring to rebuild those stocks.” USDA’s Prospective Plantings report put corn acres at 92.2 million acres, up 5 percent from last year but still below what is needed to meet current demand and build stocks. “The market’s job is to buy corn acres over the next 30 to 60 days,” Hoops says. To do that July corn could climb to its old highs of $7.45 to $7.50/bu.  
Hoops says with crude oil prices still over $100/barrel, future ethanol margins look good. “Ethanol companies have probably done a great job hedging themselves,” he adds. “The ethanol market will remain strong and healthy. The export market will suffer first.”
Most of the drop in corn stocks was in the on-farm category, with 3.38 billion bushels stored on farms, a 26 percent drop from a year ago. Off-farm stocks of 3.14 billion bushels fell slightly. “High corn prices have tried to limit demand to carry stocks over into next year, but this report says prices have not been high enough,” says Chad Hart, agricultural economist at Iowa State University, Ames.
Hart thinks stocks will remain tight through the 2011-12 season, and low stocks will likely push the seasonal average corn price 20 to 30 cents higher to $6.20 to $6.30/bu. for the seasonal average.
High prices have already convinced many growers to sell their corn stocks. “Even if we look for more corn—usually you can pull from on-farm stocks—it’s been sold,” says Hart. “Those who have held onto corn could see higher prices over the next few months.”
Using a 92.2 million acre planting number, plus an average yield of 161.7 bushels per acre and a 92 percent harvested acreage figure, means U.S. growers will produce 13.54 billion bushels of corn this year. USDA estimates corn use at 13.56 billion bushels. “That says we can’t build stocks,” Hart says. In fact, stocks could fall below the 5 percent stocks to use level, the lowest since USDA began tracking the numbers more than four decades ago.

Soybeans come up short

Soybean stocks of 1.25 billion bushels were 2% lower than a year earlier, and on-farms inventories estimated at 505 million bushels fell 17 percent below a year ago. Off-farm stocks, at 744 million bushels, are up 13 percent from last March.
Using USDA’s 76.6 million acres included in the Prospective Plantings report along with a yield of 43.4 bushels per acre and an average harvested number of 98% of planted acres, U.S. growers will harvest 3.27 billion bushels of beans this fall—but USDA estimates use at 3.34 billion bushels. “Stocks could get even tighter,” says Hart. “And they are incredibly tight now. We’re short.”

Wheat stocks rise

Quarterly wheat stocks rose 5 percent above last year’s levels, according to USDA’s Grains Stocks report. Wheat stored in all positions as of March 1 totaled 1.42 billion bushels. On-farm stocks are estimated at 288 million bushels, a 17-percent drop from last year. Off-farm stocks of 1.14 billion bushels are 13 percent higher.
While wheat stocks are healthier than corn and soybean inventories, quality in the wheat crop remains an issue. “If you look at just the wheat, there’s nothing in the report that would be considered friendly,” says Charles Soul, wheat trader for Country Hedging, Saint Paul, Minn.
Soul expects wheat prices to follow corn and soybean prices higher for the next couple of days before reverting to weather concerns. Drought continues to be a concern in the hard red winter wheat area of Texas and Oklahoma. “And you can’t assume the spring wheat crop will be high in protein,” Soul says. If cool, wet weather persists in the northern plains states, protein levels could suffer.


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