Markets Now: Will Corn Prices Follow Oil Prices Lower?

November 16, 2018 04:58 PM

For decades corn prices have been tied to oil prices. When oil prices went up so did corn and when they came down, you get the picture. While corn did not follow oil higher, analysts say it could follow it lower. 

“I think we've been under the assumption that the relationship, that tie that we had seen between oil and corn prices, was almost non-existent,” Angie Setzer explained to U.S. Farm Report host Tyne Morgan. “As oil prices moved higher, corn was a little bit lackadaisical in doing so, and for good reason.”

According to Setzer, if E15 gets through the legal hurdles ahead, that could increase the amount of blended fuels we see on the market. However, if oil and gas prices start to fall off (which they have been) there’s no incentive to blend beyond the 10% requirement, she said. 

“So I guess you could say that the blend wall perhaps gets a little bit higher,” she added.

Recent changes to the Renewable Identification Numbers (RINs) market are creating challenges for ethanol plants.

“The fact that we've seen the RINs market completely gutted [is a challenge],” Setzer said. “Before it would be okay, if your corn price was a little higher than anticipated, but your distillers price was also higher than anticipated or lower than anticipated perhaps, and your grind margins were poor, you’d have that RINs market to kind of make up the difference. We don't have that anymore because we've seen the administration make moves with refinery, exemptions, and things of that nature to really kind of make the RINs a non-player in the market structure. So, we're seeing ethanol plants that are shutting down, we're seeing where there's a rumor of a plant in Iowa that's going to half pace grind.”

She says the struggles presented to refiners are real and the corn market will reflect them.

According to Sam Hudson, the timing is bad for the corn market right now too.

“We mentioned the market shifting from a kind of a supply driven mindset to more of a demand driven mindset now, and you want to see good headlines when that takes place,” he said. “It wasn't too far off to argue that that January through March timeframe might actually be one of the better times for processor market for ethanol, because you kind of get past the cash flow needs of the farmer, they're comfortable with it sitting in the bin and all of a sudden, they got to come after it. Well, if their margins are declining, they're not going to have to, and even though we could see a little bit of a yield being ratcheted down some if the demand comes along with it, then it's kind of a non-event. And if soybeans aren't, you know, trying to poke their head above water, you just end up with this flat market.”

It's not all doom and gloom. Setzer says corn export markets remain in great shape.

“They're probably not going to get larger than where the USDA is that right now they're pretty substantial,” she said. “Obviously, ethanol usage shouldn't drop off too far, 50-75 million bushels, something like that. So, it's not something that should send prices to new lows by any means, especially with feed demand remaining in place. I think we're going to establish, a range and probably find ourselves trading in it for quite some time without some sort of stocks surprise in the January USDA report.”

According to Hudson, one of the more you know optimistic points for corn might be wheat.

“Funds are short we we've continued to see Russia export at just break neck paces and they claim they're going to continue to be able to do that,” he said. “But you just wonder in time between now and let's say January, February, if they started limiting that and you can get a boost in this wheat market. You wonder if you can even add a little bit of life to corn.”

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Spell Check

Montfort, WI
11/17/2018 08:15 AM

  Our good ol ex EPA administrator Scotty Pruitt sure lobbed a turd in the punch bowl with those RIN waivers! Goodbye to 900 million bu in corn demand. Notice how we can't get any traction with a post harvest rally? Remember the response by Trump when asked about the cheaper oil prices. His response was....that was me! We guess what? Who is responsible for the cheap corn prices? Well that was u too Donny! He wants everyone to believe that the approval of the E15 waiver is gonna help. Why would big oil blend more of a product they don't produce than the 10 percent mandate? They won't! Thanks for having our backs Mr President. U put a knife into it!

Richard Eggleston
Floyd, VA
11/18/2018 08:51 AM

  So why should people pay more just so you can produce more corn at a higher price? Government enforced charity is never a good thing. Not to mention the reduction in fuel economy when I run ethanol blended gasoline.

Small town, KS
11/17/2018 02:04 PM

  To Kevin. Please don't forget Chump is a REAL negotiator. Just like he is giving you/us $12 billion to help cover the lower prices @ .01 cent/bu when he lost 50+ billion in trade. That .01 cent won't even cover the fuel bill to apply for the deficeit. And most of it will end up with the 'snappers and wics' program. With him in office, we don't need any enemies.


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