Strong corn exports, profitable ethanol plants and increasing feed usage appear to be bullish fundamentals for corn. But don’t be fooled into thinking prices will head higher this fall, according to grain analyst Richard Brock, speaking at the 2014 Mid-South Farm and Gin Show.

Brock says the feed and residual number for corn in 2013-14, at 5.2 billion bushels, is a nearly one billion bushel increase over last year. But it’s misleading. “You may wonder how that can happen because were not adding livestock numbers, but we have quit feeding wheat and we’ve quit importing corn, so were just getting back to normal numbers,” after the short crop in 2012.

Brock says the United States will export about 1.5 billion to 1.6 billion bushels of corn in 2013-14. “Exports of corn have been exceptionally strong. In 2012-13, we exported only 731 million bushels.”

 

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The cloud hanging over the market is the estimated big increase in corn carryover, Brock noted. “Last year we had 821 million bushels left over. This year, USDA says are going to have 1.5 billion bushels left over. We believe it’s going to be 1.7 billion bushels.

“You didn’t need a PhD in agricultural economics to figure it out. You just doubled the carryover of the supply of corn. You better be an aggressive seller of corn. There is only one direction that this corn is going to go.”

Things could be even more bearish for corn should high prices lead to an increase in planted acres this spring. Brock estimates that corn producers will plant about 94 million acres, which is a little higher than the average trade estimate.

Price scenarios

Brock offered several scenarios for prices based on acres and yield.

“If we plant 92 million acres of corn and have a 160 national average corn yield, then our average price of corn on the farm will be about $4.60. If we plant 94 million acres of corn and have a yield of 160 bushels per acre, our average price is going to drop down to about $4.25.

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“If we plant 96 million acres, which is not going to happen, it would take us under $4 a bushel. If we plant only 92 million acres and we have a horrible spring and summer and end up with 157 bushels per acre, we’re looking at $5-plus corn.”

Brock said the stocks-to-use ratio is a good measure of the relationship between price and cost of production.

“If the stocks-to-use ratio in corn is over 16 percent, the average farm price has always been less than the cost of production. If it’s between 8 percent and 16 percent, which is where we’re at this year, there’s a 70 percent chance that the average price is going to be below the cost of production.

“If the ratio is 8 percent or less, there is a 100 percent chance that the price will be above the cost of production. But the chance of that now is slim to none.”