Continued support for corn prices
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[December 06, 2012]
URBANA -- Corn prices peaked in August, moved
sharply lower in September and have been in a sideways pattern over
the past two months. Within that sideways pattern, prices have moved
higher over the past two weeks, with March 2013 futures trading
within 10 cents of the post-September high. The recent rally has
been fueled by some supply concerns and more optimism about
near-term demand, said University of Illinois agricultural economist
Darrel Good.
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"There are two concerns about potential supply of corn in 2013,"
Good said. "First, the ongoing wet weather in Argentina may
reduce the magnitude of planted area of corn relative to
intentions. Fewer acres would threaten the projected rebound in
production. The USDA has forecast the 2013 harvest at a record
1.1 billion bushels, a third larger than the drought-reduced
harvest of earlier this year. The USDA will update the forecast
in the monthly World Agricultural Production report to be
released on Dec. 11, but a large change in that forecast is not
expected this early in the season. During last year's drought,
the forecast of production was not reduced in December, but was
reduced sharply in January and again in February. The potential
implications of wet weather on acreage and yield are even more
difficult to discern than the implications of drought
conditions," Good said.The second supply concern is for the
upcoming U.S. crop in the face of continuing widespread drought
conditions, Good said.
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"The latest U.S. drought monitor map shows exceptional
drought conditions in large portions of the Plains states and
severe to extreme drought conditions extending to the
Mississippi River and in northern Illinois and southern
Wisconsin," he said. "Significant drought conditions also
persist in some Southeastern states. Very dry soil conditions
underscore the need to replenish soil moisture and for timely
rain during the 2013 growing season. The production risk of
continuing drought conditions is being balanced against the
potential of a record corn harvest if acreage is not reduced and
2013 growing-season weather is generally favorable for corn
yields. The balancing act is reflected in futures prices for the
2013 crop that are below old-crop prices, but high by historic
standards."
According to Good, the pace of U.S. corn exports remains very
low, but some increase in the demand for U.S. corn is expected
yet this marketing year. Export inspections during the first 13
weeks of the marketing year totaled only 208 million bushels, 48
percent less than cumulative inspections of a year ago. The
weekly rate of inspections needs to increase from the current
average of 16 million bushels to 24 million in order to reach
the projection of only 1.15 billion bushels for the year.
Unshipped export sales totaled only 278 million bushels as of
Nov. 22, which is 238 million less than on the same date last
year. New sales need to average 17 million bushels per week for
sales to reach 1.15 billion bushels. Sales exceeded that average
for the two weeks ended Nov. 22, and the more rapid pace may
continue as supplies of competing grains are reduced.
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"Domestically, ethanol production continues to be well below the
rapid pace of a year ago," Good said. "Production last year,
however, was accelerated by the impending end to the blenders' tax
credit. Through the first quarter of the 2012-13 marketing year,
cumulative ethanol production was about 9 percent less than during
the same period last year. The USDA has projected a 10 percent
decline in the amount of corn used for ethanol production during the
current marketing year. The decline in expected ethanol production
reflects the plateauing of domestic consumption, increasing imports
from Brazil and steady to declining exports of ethanol. The
so-called blend wall will continue to limit domestic ethanol
consumption and production, but corn use this year should at least
reach the USDA projection."
The rate of feed use of corn is not known, Good said. "The USDA
projects use for the year at only 4.15 billion bushels, nearly 9
percent less than apparent use of last year. However, marketing year
feed and residual use estimates and projections are confused by the
harvest of a large quantity of corn before the start of the 2012-13
marketing year on Sept.1. Taken together, current livestock
inventories, slaughter numbers and slaughter weights suggest strong
overall feed demand. The number of cattle on feed on Nov.1 was 5
percent less than that of a year ago, but the number of dairy cows
during October was only 0.3 percent less. The placement of
broiler-type chicks during the first four weeks of November was only
0.7 percent less than those of a year ago. The average number of
layers on hand during October was 1.4 percent more than that of a
year earlier. October hog slaughter was record large and exceeded
that of a year ago by 10 percent. Average cattle and hog slaughter
weights in October were near those of a year ago," Good said.
Good concluded that the USDA's Dec. 1 stocks estimate and the
final 2012 U.S. production estimate to be released on Jan. 11 will
add some clarity to corn market fundamentals. Current conditions
point to continued strong corn prices until then.
[Text from file received from the
University of Illinois College of Agricultural, Consumer and
Environmental Sciences]
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