How High Can Corn Prices Get Before Reducing Demand?

June 5, 2019 02:48 PM
 
Rushing rivers, disastrous downpours and muddy messes have kept thousands of farmers out of fields. What does this mean for supply and demand?

Rushing rivers, disastrous downpours and muddy messes have kept thousands of farmers out of fields. What does this mean for supply and demand?

“Supply is still going down, but we don’t know yet how bad it will be, and it’ll take all summer to assess this,” said Bill Biedermann, of AgMarket.net, to U.S. Farm Report Host Tyne Morgan. “Right now, we’re showing 8.66 million acres lost and if Monday doesn’t show a good Crop Progress report we’ll boost that estimate to 11 million acres.”

That sharp acreage drop still doesn’t account for acres with drown out and other agronomic issues that could lead to overall yield loss.

“This weather event is historic—double the geographic area of the 93’ flood,” he adds. In 1993 experts estimated farmers would only harvest 92% of normal yield but actual harvest numbers dropped to 86% of trend yield.”

Even with poor Crop Progress reports recently, the formerly upward-moving corn price saw a drop earlier this week. Is price driving demand down already?

“We’re already seeing degrees of that—Monday’s report saw prices erode lower over the next few days,” said Mike North, president of Commodity Risk Management Group in Wisconsin. “We’ve seen with end users some numbers kicked around at the $4.80 to $5.00 range saying, ‘I won’t feed cattle in the lot, I’ll put them on grass,” or ethanol producers saying they’d shut down.

“The demand side won’t walk hand-in-hand with the producer up the mountain, somewhere around $5.00 it’ll kill demand,” North added.

Farmers and traders saw evidence of this earlier this week when Smithfield made a large corn purchase from Brazil.

“Smithfield bought 500,000 tons of corn from Brazil, so we’re already seeing some of that [demand erosion],” Biedermann said. “At $4.60 demand starts to shift to South America and if we see yield drop from 167 bu. per acre to something like what we saw in 95’ at 158, that’s a $5 corn market.”

The traders say farmers need to lock in the profits they can now and consider protecting themselves with options such as puts and calls—just in case they can’t deliver on what they’ve contracted or prices go even higher.

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Comments

 
Spell Check

Roger Morris
YORK, NE
6/7/2019 08:16 PM
 

  Thank you for your service. It helps our tenant and our financial decisions.

 
 
Farmer Ed
Somewhere, IL
6/8/2019 07:34 AM
 

  All comments are dead on. Unfortunately, farmers are the only ones commenting and reading the comments. We already know what the problems are. The rest of the ?????? 99% are clueless and really don’t care. Look behind you and see who is there to take your place when you can’t do this anymore for whatever the reason. That is the black cloud on the horizon that nobody wants to discuss. It is near and will definitely be felt——-after it is to late with NO fix. Think about it-good luck to us all!

 
 
welby
remington, IN
6/5/2019 05:31 PM
 

  smithfield is china owned so why would they not buy from brazil 641CEB

 
 

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