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Downside potential increasing for corn market




  • CHAMPAIGN, Ill. — A miracle corn crop was produced in 2013.

    “It was a terrible start to the year, so it is amazing how everything worked to finish this crop pretty well,” said Roy Huckabay, executive vice president and director of market research at Linn Group.

    However, a lot of the corn this year went into storage wet.

    “It was at 19 to 20 percent moisture, probably more so in Minnesota and Iowa than in Illinois because the corn quit drying down,” Huckabay said during a presentationat the Strategic Farm Marketing customer seminar.

    South American farmers responded to the strong corn prices in 2013.

    “Especially in Mato Grosso, when they took their beans off in January and February, instead of planting cotton and beans, they really went after corn,” Huckabay said. “And their double-crop production was bigger than their first crop.”

    The loan price for a Chinese farmer is $10 per bushel of corn.

    “U.S. corn with delivery to China is trading at about $6.25 per bushel, and it costs about 18 percent to import corn into China, which takes the price to about $7.50,” Huckabay said. “That’s still $2.50 cheaper than the domestic corn price.”

    China has imported a record amount of beans, he said.

    “We also know they’re importing record amounts of wheat,” he noted. “I think it is possible they can import one-half of our dried distillers grains exports, which doesn’t have an import quota, and they are taxed at 5 percent instead of at 18 percent for corn.”

    Huckabay said he expects China to import 7 million tons of these grains.

    “They’ve already imported 3.5 million tons of DDGS, and they’re going to import 2.5 million tons of sorghum,” he predicted. “China has also imported record amounts of rice.”

    As the middle class in China grows, Huckabay said, they want to eat better.

    “That’s what has led to the protein demand,” he explained.

    In the U.S., Huckabay said, “I think we emptied a lot of bins last year, and a lot of users got down to zero inventories waiting for the new crop.”

    During 2013, a lot of corn went into on-farm storage since the farmers didn’t like the cheaper prices, Huckabay said.

    “It is interesting they continued to sell beans,” he noted.

    The U.S. cowherd is the smallest since the 1970s.

    “It is going to take a long time to build it back up, and when you start pulling heifers out of slaughter to retain them, the price of beef will go skyrocketing,” Huckabay said.

    “Hog margins have been hurting a little recently. We got up to where we were making $55 per head, and now it’s at $45 per head,” he reported.

    “Ethanol production is back up running close to where we were before we had a corn supply issue,” he said. “We’re making more ethanol and using more so inventories have remained relatively tight.”

    Huckabay estimated the corn ending stocks at about 2.2 billion bushels.

    “A guy in the Dakotas that grew 125-bushel corn might cut back on corn acres,” he said. “But I don’t know if you’ll be able to talk a guy that grew 200-bushel corn not to grow corn this year. He’ll stay with his normal rotation.”

    Huckabay showed a picture of a corn pile in Mato Grosso that was estimated to total from 2.5 million to 3 million bushels of corn.

    “That corn is worth about $2.75 per bushel domestically because they couldn’t get it to the export market,” he said. “I think this corn pile turns into beans next year.”

    He is concerned that the Department of Agriculture will increase the U.S. corn production estimate in the January crop production report.

    “I’m using a corn yield three bushels bigger than the USDA,” he said.

    “Corn is going to have a hard time getting above $4.50. I don’t think we break down in December. I think we limp out sideways,” he added.

    But next year, the risk of downside in the corn market moves up a notch.

    “If acres stay as big as I think they do, I think you’re looking at a corn price going down to $3.80 to $3.50,” Huckabay predicted. “I don’t think corn future prices will go below $3.50 and stay there very long because it turns on too much demand and turns off farmer selling.”

    The soybean market has been stronger recently than Huckabay thought it should be.

    “It is all based on meal trade, which has been really strong,” he said. “I think beans come down and trade at $11, but it takes a big crop in South America.”

    In February, if the South American farmers are running bean planters behind the combines instead of the corn planters, the bean market is headed to $11, Huckabay said.

    “It could get as bad as $10, but I’m not looking for anything south of $10,” he said.

    “For four or five years, we’ve said grow it and worry about marketing it after you get it in the bin,” he added. “For the next three years, you better have it marketed before you grow it.

    “I’m pretty bearish beans because of what I see coming in South America,” Huckabay said. “If they have big yields in February, you’ll be surprised what bean prices do.”

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