Corn rally unlikely through winter, spring

Cattle Market & Farm Reports, Editorials
Jan 17, 2005
by WLJ
— Significant downturn unlikely also.
Cheaper-than-normal feed corn prices are expected to remain in place through at least the first half of the year, as 2004 production and end-of-year stocks were both higher than previously forecasted. Several market analysts, however, didn’t think prices would drop much more either as corn exports and domestic ethanol demand this year are expected to eclipse 2004 levels.
According to USDA’s latest crop production forecast, the 2004 corn harvest is expected to total 11.81 billion bushels, 50 million bushels more than was projected in November and 1.7 billion bushels more than the previous record harvest of 2003. Pre-report analysts’ projections ranged between 11.6-11.8 billion bushels, with an average guess of 11.735 noted.
In addition, the agency announced that Dec. 1 corn stocks totaled 9.45 billion bushels, 16 percent larger than Dec. 1, 2003, and the largest carry-over figure since 1987. Of the total stocks, 6.14 billion bushels were said to be stored on farms, up 16 percent from a year earlier. Off-farm stocks were pegged at 3.30 billion bushels, up 24 percent from the prior year. September through November disappearances were called 3.32 billion bushels, compared with 3.22 billion bushels during the same period in 2003. Most analysts’ had projected that stock number to be between 8.8-9.15 billion bushels.
A majority of market analysts said the reports carried some “major surprises,” but that most surprises weren’t very good for grain farmers through the first half of the year. On the other hand, livestock producers were said to be looking to benefit from lower feed expenses through at least June. Sources projected feed corn prices would range anywhere between $1.85-2.15 per bushel for the first half of 2005, with a tighter range of $1.90-2.00 more likely. On a per cwt basis, corn is projected to range mostly between $3.30-3.80.
“This was definitely a case of the big crop getting bigger as time went by, and it will keep prices fairly well depressed for the first half of the year,” said Jerry Gidel, grain market analyst with North American Risk Management Services, LaGrange, IL.
However, Gidel also said there are enough questions surrounding the 2005 crop potential and a projected increase in corn demand, that further price decreases are unlikely.
“It’s highly unlikely the U.S. will hit yields of 160 (bushels per acre) again. It’s more likely we drop back to 2003 levels of 146—14 bushels below last year’s record,” said Gidel. “We are also looking at a pick up in overseas export demand and domestic ethanol production is expected to increase significantly, which could drain supplies some. Livestock use could be steady to down some this year, however, other markets will make up for that slowdown.”
Dave Monroe, broker with Wichita-based, HP Commodities Inc., said spring corn supplies could be a little smaller than other analysts anticipate. He didn’t see that resulting in any significant price changes right now, however.
“Livestock use could be steady to slightly higher, particularly with corn being a cheap feed option this year and (cow/calf) producers looking at supplementing it in place of some of the hay that’s normally fed,” Monroe said. “It’s possible half of the increase in carryover stocks could be consumed in that manner.”
USDA said Jan. 1 corn carryover totaled 1.96 billion bushels, compared to 1.84 million on Jan. 1, 2003. Exports were lowered by 50 million bushels last year after increased competition was noted from Argentina.
Gidel said any upward jump in corn prices is unlikely until the middle part of the year when the 2005-06 corn crop will start to take shape.
“A wet spring, and hot summer could mean another very large crop and that would keep corn prices depressed through the entire year. However, if drought conditions resurface in major corn producing areas, we could see some late-year jumps because of supply pressure,” he said.