Opportunities still abound for 2012
Ratchet down your price expectations for the coming year. A repeat of 2011’s sky-high prices is unlikely, even though corn stocks will remain tight. The good news is that prices won’t return to 2009’s low. Barring an unforeseen weather jolt or further reduction in global demand, $7 corn is not in the cards, analysts say.
Weaker demand in recent months combined with macro factors adds up to the likelihood that the $5.75 support on old crop will be breached, predicts Bill Biedermann of Allendale Inc. "The No. 1 U.S. corn customer, Japan, is now buying from the Ukraine," he says. Furthermore, "funds are selling out and speculators have major margin calls."
While U.S. corn stocks are tight, global export markets are competitive. "Supply-demand is leaning toward the negative side," Bieder-mann explains. As a result, markets should be relatively stable through the spring.
Sideways Corn Market. For 2012, Biedermann anticipates bearish supply news. Presently, the odds favor an increase in planted corn to 93.8 million acres. With a trend yield of 165.5 bu. per acre, that means a 13.9 billion bushel crop, 600 million bushels more than in 2011. Carryover could reach 1.3 billion to 1.4 billion bushels this coming fall. "That adds up to a sideways market and the possibility of $4.20 corn futures in December," Biedermann says, placing a premium on some serious selling before then.
Of course, forecasting that far out is fraught with uncertainty. "There are a hundred what-ifs to get there," Biedermann says. He suggests that producers create a box for old-crop corn not yet sold with a $6 floor and a $7 ceiling. For new crop, lower expectations by about $1.
"$6 is a good price for 2012 corn," Biedermann predicts.
The key word for 2012 will once again be volatility, adds Jim Hilker, an ag economist at Michigan State University. He sees January to June old-crop futures prices in the $5.75 to $6.75 range and 50¢ lower on new crop. At the end of 2011, price levels were on the low end of that, but Hilker sees a reasonable chance that prices might bounce back before spring.
"Beginning in February, we’ll see a fight for acres," he says. On the bearish side, both Argentina and Brazil responded to strong corn prices by planting more acres. If March futures get back to $6.40 to $6.75, he suggests producers do some serious selling.
On new crop, Hilker expects a December 2012 futures price range of $5.90 to $6.20 from now through June. He advises producers to begin marketing in March if they haven’t already, particularly if prices return to $6. At planting, he suggests farmers make some sales at $5.80 if they haven’t sold any of their 2012 crops, and more if prices exceed $6. He sees resistance beyond $6 to $6.10.
Events affecting corn prices have been a mixed bag, Hilker adds. On the positive side, the Nov. 9 USDA crop report projected U.S. corn production at 12.310 million bushels, 123 million bushels less than the October report and 92 million bushels below the average trade estimate. The change came from a lower yield estimate of 146.7 bu. per acre and a lower grain weight.
While this news was positive for corn prices, expectations of reduced demand followed, he says. For exam-ple, the dollar has strengthened, which makes U.S. exports more expensive, but it has also caused oil prices to move higher. That’s good for ethanol prices, but high fuel prices hurt the worldwide economy.
One wild card is how the European debt crisis plays out. "There have been lots of ups and downs the past few weeks," says Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri.
The Greek crisis appears to have been averted, and a major scare in Italy is lessening with the departure of Prime Minister Silvio Berlusconi, Westhoff says. "Debt remains a major problem for several countries, and unemployment is very high. Europe is not as important as it once was as a destination for U.S. farm products, but problems in Europe are affecting the entire global economy."
Cory Walters, an ag economist at the University of Kentucky and a farmer himself in Montana, looks for old-crop corn prices from now to spring to be within 60¢ each side of $6. Near the end of 2011, markets took a tumble, primarily due to problems in financial markets and USDA finding more stocks. On new crop, Walters anticipates an incredibly wide $2 price range now through spring, $4.50 to $6.50 in a highly volatile market.
High Global Soybean Stocks. On the soybean side, don’t be deluded by tight U.S. stocks, Biedermann advises. While U.S. stocks are indeed tight, global stocks of 66.5 million metric tons are the second highest ever. Moreover, unlike its hold on corn, the U.S. controls only 8% of global soybean supplies.
"Soybeans have a good deal of downside risk," Hilker admits. "Corn prices are keeping soybean prices where they are." For January to June, Hilker looks for cash soybean prices to be in the $10.50 to $11.50 range.
"Corn and bean prices are highly interdependent, especially in acreage decision time," Walters says. If old-crop corn prices are $6, he looks for $11.50 to $12.50 beans, but only $10.50 if corn prices are $5. "For new-crop beans, I look for an average price of $12.20, with a high level of volatility and the possibility of $1.50 movement to each side."