New crop corn fundamentals are headed in the wrong direction with demand dropping and the potential for a large crop this fall, said grain analyst Peter Georgantones, with Roy E. Abbott Futures.
“A lot of farmers have been pie-in-the-sky, thinking that (corn and soybean) prices could keep holding for some time,” said Georgantones, speaking at a Minneapolis Grain Exchange press briefing on USDA’s April 10 World Agricultural Supply and Demand Estimates. “There’s going to be a lot of disappointed people out there because you’re not going to see $6 December corn on the board unless you throw in weather. You’re not seeing $14 November soybeans or anything like that.”
USDA’s WASDE report did surprise some analysts looking for a higher carryout in old crop corn. This assumption was based on USDA’s March 28 quarterly grain stocks report, which found an additional 400 million bushels of corn. “If you add 400 million bushels to USDA’s March carryout estimate of 632 million bushels, some people thought we had a shot to be up where near 1 billion bushels in carryout.”
Instead, USDA dropped its estimate of feed use by 150 million bushels and cut exports by 25 million bushels, while increasing ethanol use by 50 million bushels. The estimated carryout of 757 million bushels led to some short-lived excitement in the corn market.
World carryout in old crop corn was 125.3 million tons, up from 117 million tons the previous month “mostly on a larger crop in Argentina, Brazil and the higher stocks number in the United States in March,” Georgantones said. “So we’re going in the wrong direction if you’re a bull.”
The wheat market doesn’t look much brighter, Georgantones said. “There’s no story in the wheat market that is bullish right now. We have a stocks-to-use ratio of about 30 percent. And with all of the poor weather in the Dakotas and parts of Minnesota, there’s already talk that corn acres are going to shift back to spring wheat, because they’re going to be hard pressed to get any corn planted early this year.
“The wheat market is going to be a drag on corn, and vice versa. With the corn market getting killed for a dollar in two days because of the (March 28) stocks report, we’re back to feeding corn again in place of wheat.”
World carryout in wheat rose from 178.2 million tons to 182.3 million tons. “I think wheat is going to roll down to the $6 to $6.25 area as we get into winter wheat harvest. We’re going to need weather to affect the wheat market, and right now I don’t see that catalyst.”
Tightness in old crop corn and soybeans is keeping optimism high, noted Georgantones. “The soybean old crop story is still really alive. It’s probably going to stay that way through the beginning part of the summertime. The logistics problems in South America have created a shift in some soybean demand coming to us. USDA raised soybean U.S. exports by 5 million bushels and crush by 20 million bushels. Beans are going to remain tight. China has been a big buyer usually on pullbacks.”
Georgantones said the tightness “is eventually going to be alleviated with a huge South American export program. And then, with all of the acres we planted here and a trend line yield, (we’re going to see) quite a bit lower prices.
“New crop corn is probably moving down with a decent crop to $4 a bushel this year. There will be a lot of pain for the farmers who didn’t lock in. New crop soybeans are probably headed down to $10 a bushel, provided we have trend line yields.”
Lower corn and soybean prices should start building some demand back into the market, Georgantones said. “But it’s going to take some time. If we can bottom these markets out at decent levels, we’re probably going to get some Chinese buying in corn and soybeans. We can build some demand, but we have really hurt our demand base in this country.”
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