Market Outlook: Corn and beans up, but volatility continues

January 30, 2013 02:43 PM

Reports Brighten Corn, Soybean Price Prospects

Higher than expected U.S. livestock feeding boosts price prospects for corn and soybeans, but analysts say not to be too tardy in marketing 2013 crops. With big acreages likely and trend yields, prices could approach break-even by harvest.

Corn and soybean futures are mostly moving higher, a result of the upbeat numbers in USDA’s Jan. 11 reports. "The reports are bullish for corn," says Chad Hart, ag economist at Iowa State University. For now through spring, he looks for $6.70 to $7.30 old-crop futures prices, but $5.70 to $6.30 new-crop prices.

Jim Hilker, ag economist at Michigan State University, looks for more upside in old-crop corn futures, with a price between now and spring of $7.25 to $7.75 per bushel. He suggests selling a portion of old crop at rallies above $7.60: "Such tight stocks set us up for incredible price volatility."

On new crop, the most plausible set of events takes the market down to a $5.25 per bushel cash price at harvest, and that’s assuming a trend yield of 158 bu. per acre, Hilker says. If December futures get back to $6.40 to $6.58 in February, he suggests having 15% to 20% sold.

The big news for corn and soybeans is that USDA raised corn’s feed and residual use by 300 million bushels for the 2012/13 crop on higher than expected livestock production. Ending stocks are projected 44 million bushels lower at 602 million. The season-average price for corn is unchanged at $6.80 to $8 per bushel.

On soybeans,prices moved higher on stronger corn numbers. USDA, however, lowered its soybean price expectation 30¢, with an expected 2012/13 range of $13.50 to $15 per bushel for a season-average price.

Hart looks for $14 to $14.50 on old-crop soybean futures. Moving to the 2013 crop, the November futures contract was shy of $13 last month, and Hilker advises pricing a percentage at levels above $13.40, which is about $13 cash. "It’s possible prices could get under $12 this fall," he says.

Wild Ride for Corn, Soybeans

Corn and soybeans have been far more volatile than other commodities, such as oil and even the stock market, and that may be the harbinger of more to come. Corn prices swung 42% during 2012, with soybean prices swinging even more, 50% during the year, note Iowa State University (ISU) economists in a recent report.

By comparison, the Dow Jones Index was relatively quiet during 2012, swinging roughly 12%. The Dow hit its annual low point in early June, down 2%; peaked in the fall at a positive 10%; but then retreated to fi nish the year up 6%.

Energy prices had stronger movements. Oil prices started the year strong and were up nearly 7% in February. But increasing domestic supplies and continued lack of strength in gasoline demand brought oil prices lower into the summer. During the year, oil prices had a 31% price range and finished down 10% from the start of the year.

Corn prices struggled during the fi rst half of 2012 before heading far higher under drought pressure. Both corn and soybeans hit their highs right before harvest and then retreated. Both ended the year in positive territory, however, with corn up 6% during the year, while soybeans gained 16%, ISU economists point out.

Much of the price pressure during the last quarter of 2012 was driven by a pullback in demand. Corn usage has been down across the board, while soybean demand was split. Domestic soybean demand has been down, while export demand has been up.

One sector taking a particularly hard hit has been ethanol demand, as plant margins fell. Ethanol maintained its cost advantage to gasoline, which supported ethanol margins. Those margins were not necessarily passed back to ethanol plants, however. Ethanol production declined 10% as corn prices rose last summer, and that production has not returned.

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