Corn Market Changes

Corn Market Changes

David C. Moll, Grain Marketing Outreach Specialist, University of Wisconsin Extension

USDA released two important reports this morning that likely have set the tone for trading through harvest.  The report was very bearish for corn, use of the 2010 corn crop has slowed and acreage for the 2011 crop was increased up to 92.3 million acres.  The corn market took hits from multiple angles.  The highs have likely been placed for grains, the tightness in corn ending stocks which supported higher prices is not the situation anymore.

In last weeks article, “Corn: The Price Roller Coaster Continues. Is Demand Slowing?” of the Wisconsin Market Bulletin, we pointed out indications that the market may have turned and additional signals to look for to reconfirm.  USDA indicated this morning that demand for corn has slowed as a result of the higher prices and production prospects for the 2011 crop are also increased, both are bearish news for corn.  Prior to this morning’s report for the 2010 corn crop, expectation of stocks has been as low as 695 million bushels or a mere 5.2% of stocks for next year’s demand, a record tight level.  Since demand has slowed, the new expected carryout could come much closer to a 900 million bushel carryout a much more comfortable level for the market.  When in the upper plateau of prices, these changes mean a big difference on where price needs to be.  Realistically, that changes the landscape for old crop prices and support for new crop prices, prices can retrench fairly quickly.  At the higher prices corn just has not been used.  Corn has been put at such a high premium relative to other possibilities that other “cheaper” feeds were being used, the lack of use added carryout for the 2010 crop year.

In the same breath USDA also indicated that there were actually 92.3 million acres of corn planted this spring.  This is another big piece of bearish information for the market.  This is based on a producer survey from June 1, keep in mind though that 14% of the corn crop was not planted when the survey was taken so there could be some flexibility in this number as the season progresses as some important production states were still far away from complete planting (see Wisconsin Market Bulletin – June 30: USDA Will Release Acreage Report).  Ohio was only 19%, Indiana was 59% and Michigan was 67% so there could be some difference between what a grower thought he was going to plant on that day and what ended up happening.  Since crop insurance preventive plant claims are not made until June 5 for those states, there could still also be some acreage that is reduced.  Never-the-less the 92.3 million planted acres was a surprise to the market adding an additional 292 million bushels of corn to next year’s corn balance sheet.  In January USDA expected about 92 million acres to be planted, so this is not a big jump from that, but it is because it is higher than traders were expecting and it is 2 million acres higher than was USDA had in the U.S. Corn Supply and Demand table on June 9, 2011.

This is not to say that if demand charged back and/or yield prospects were significantly reduced that prices could test higher levels again but for the next couple of months the pricing environment has changed and the highs have likely been placed near $8.00 a bushel. The price does not need to be as high with the current balance sheet as there are extra bushels for the market to work with.  As Bruce Jones indicated at the Status of Wisconsin Agriculture in January, “higher prices do two things, curb usage and incentivize more production” and it looks like that is what has happened.  Old crop prices are down 80 cents on the day, while the remaining contracts are trading limit down of 30 cents.  As protection for the market there are limits in place so that prices do not go from one extreme to the other as new information enters the market.  After the market has had time to absorb new information and has traded on one side of the limit, the limits widen to 45 cents and 70 cents.  For the closest contract month though there are no limits.  Tomorrow’s trade could be just as rough and then the market heads into the long holiday weekend not trading on Monday.

Soybeans were not as negatively affected by the report, but will likely face spillover pressure from the fallout in the corn price.  Soybean acreage is expected to be at 75.2 million acres on the lower end of trade expectations.  Soybean use has also slowed though and projected carryout is higher than what USDA had in the June 9 report.

Large price swings will remain over the rest of this year, but there is a lot of bearish pressure now facing the high prices.  Links to both of today’s reports are included below.

USDA Planted Acreage Report – June 30

USDA Grain Stocks – June 30