The story for corn doesn’t seem to be improving. Ethanol demand continues to be weak, and improved planting progress shocked the market. The market did see a pop on Thursday, thanks to some purchases from China.
“We’ve got China down at the Gulf buying anywhere between 6 and 10 cargoes of U.S. soybeans for the last half of the year—August, September,” says Dan Basse of AgResource Company. “They came in right after the hard opening of the Chicago Board. We started to rally thereafter. It caught funds short at the end of the month.”
Chip Nellinger says the interest from China combined with a pop in the oil market helped create support on Thursday.
“That was a nice change of tone and tone in the market ended earlier this week when it seemed like the trade was a little surprised at how much planting progress has been made so far,” says Nellinger of Blue Reef Agri-Marketing. “That’s certainly a 180-degree difference from a year ago.”
Nellinger knows the planting weather is favorable everywhere. Basse says in central Illinois,however, as more planting progress was made this week, hefears the fundamentals haven’t changed in the market, meaning the bounce may be short-lived.
“I think as you stand back from the market, China has a week-long holiday that started Friday,” he says. “The UK and the U.S. are the only major economies that are worked on Friday. I’m concerned that it’s these bear markets that have short, swift rallies.”
As planting progresses, more farmers may be considering switching to soybeans due to the price risk of planting corn. Even if U.S. farmers don’t plant 97 million acres, Nellinger doesn’t think there will be enough of an acreage shift to make a difference.
“I know for a fact that there are producers, at least here in Illinois, shifting some acres away from corn to soybeans,” he says. “I’ve heard in the South that we’ve hit their prevent plant date on corn, so there’s at least some prevent plan there. I do think that the biggest acreage number in March will be behind us. I think it will swing from here, but not in a major way, probably not enough to be a major market mover.”
Nellinger thinks U.S. farmers could switch a total of 1 million to 1.5 million acres out of corn planting this year, and he says that won’t be enough to move the needle. Basse says even if farmers planting just north of 95 million acres, with demand disappearing for corn, his price outlook is bleak.
“$2.60 to $2.80 a bushel for a December low price,” says Basse. “It’s pretty ugly. There are baby bear markets. There are mother bear markets. This is a papa bear. When you look at the ethanol demand, which we think is 400 to 500 million bushels before the end of the crop year, I’ve got ending stocks in corn at 4 billion bushels.That models out to even prices lower than what I talked about.”
He says a 4-billion-bushel carryout could lend to prices in the $2.50 range. So, what will it take for markets to move the other direction? Nellinger says the biggest thing is time.
“No. 1, we need to see the energy markets rebound,” says Nellinger. “We need to get some stability back in the ethanol industry, and those are the big question marks right now. That’s not going to happen in days or weeks. That’s going to take months and months and months to fix this problem.”
Nellinger acknowledges that a 4-billion-bushel carryout scenario in corn is bearish, and means prices could spend a lot of time under $3.
“But sitting here the first of May, we’ve got the growing season to get through,” he adds. “We’ve got to grow the crop first, and so weather is still going to be a part of that. We are subjecting ourselves to some weather uncertainties. That would definitely affect the market. But I think, you know, any bounces that you do see back up north of $3.50 and certainly if we hit $3.60 again on December corn, you have to be a willing protector or seller.”
Nellinger says producers need to remember crop insurance will be a big player in the price forecast, as well, and depending on individual crop insurance plans, those could help protect from lower prices.
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