Is Corn Undervalued?

July 20, 2018 05:22 PM
 
According to one analyst, corn is being undervalued and things could shift by the end of the summer.

Corn prices have been under pressure for most of the summer. According to one analyst, the grain is being undervalued and things could shift by the end of the summer.

“When you look at the [USDA] numbers themselves, and if you're going to look at it from more of a fundamental perspective, we are severely undervalued,” Steve Georgy of Allendale Inc. told AgDay host Clinton Griffiths. “But, we are at the levels that we are at.”

According to Georgy, emotion is driving the marketplace. 

“Getting wrapped up in the emotion, the selling of just panic and fear, that's really what [this market has] become,” he said. 

In their July World Agriculture Stocks and Demand Estimates (WASDE) report, USDA pegged new crop carryout on corn at 1.55 billion bushels, a low figure for this time of year. 

“You've got global ending stocks declining for the last four to five years. Now, you've got declining any ending stocks here domestically, so when you look at where that number should be, probably closer to $4.50 to $4.70,” he explained. “But, nobody wants to say that.” 

Georgy says USDA’s numbers are trying to tell the market that corn is undervalued, but the farmers won’t see that value come back unless some of the emotion leaves the marketplace.  

“This mentality that we're in right now with all the tariffs and everything else, that now needs to shift,” he said.

The weather forecast looks good throughout the remainder of the growing season which combined with USDA’s crop progress ratings, is making some anticipate a record corn crop. 

“Everything about [the market] really has been good except for the emotion that is involved,” he said. “But the idea is still since USDA did not change the yield on this past report, the expectation now is to change the yield on the next one. And so you get good to excellent ratings were there at, the expectation to see this this big crop yet is still looming. And so that is still something that's probably coming ahead that we now need to pay attention to.”

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