Despite a recent downturn in prices, corn still shows the strongest fundamentals of the grains and oilseeds complex, according to a market analyst.
The corn market is currently being driven by export demand created by a sharp decrease of 1.1 billion bushels in foreign feed grain production, according to Bob Wisner, Iowa State University, speaking at the Ag Market Network's April teleconference.
“Supplies are tightening (in the world), and the instinct is to use domestic supplies first, then turn to the United States. That is what is happening now.”
A recent downturn in prices in April resulted from profit-taking by funds, according to Wisner. “We've had very large long positions in corn, soybeans and wheat. That creates a lot of volatility in those markets.”
Wisner says there is still a good bit of upside potential for corn “as we move into the spring and the peak of the Midwest planting season and into mid-May.”
Other positives for corn include 13 new ethanol plants under construction in the United States, all of which should be in production in a year.
In addition, cattle backed up in feedlots because of concerns over bovine spongiform encephalopathy (BSE) “is positive for the short term for feed demand. There appears to be an expansion under way in the hog industry. We have large broiler numbers. When you put all that together, we're expecting a significant drop in corn carryover stocks below 900 million bushels.”
This news, plus planting intentions of 79 million acres, “tell me that corn is fundamentally on fairly solid ground. We need a minimum of 10.3 billion bushels of corn (to satisfy demand). Last year, we were a little below that mark. It's going to take very good yields at the forecast corn acreage to avoid tightening stocks further.
“For the next several weeks, new crop December corn is likely to come on stronger than old crop corn, leading old crop up, in an attempt to get more corn acreage. Technically, we have strong support on July corn at $3.20 to $3.22.
“On new crop, there are possible upside objectives in the $3.74 area. That's not guaranteed, but there are traders looking at those prices.”
“The driving force for soybeans is a seriously short crop in the United States last year,” Wisner said. “We're down almost 400 million bushels from what was considered normal production due to dry weather in the Midwest. On top of that, aphids have come in as a new pest in soybeans.”
Questions about the size of the South American crop are also of concern to traders. “Early indications from trade sources indicate that South America may be close to 400 million bushels below normal due to a combination of drought in southern Brazil, Argentina, Paraguay, parts of Uruguay and excessive rains in northern Brazil that are complicating Asian rust control.
“In addition, there are reports of sprouting in fields, delayed harvests and difficult conditions for transporting soybeans on dirt roads.”
Wisner says that competition from South America, while strong, “is much less strong that we anticipated “That is going to be a support under the market.”
The dominant influence in beans is still meal demand, according to Wisner. “We have rationed export sales almost as much as we need to. If we see any further decline in bean prices, we will see additional export demand and our supplies can't allow that.”
On the other hand, “We haven't seen rationing in domestic crush. Crushing through February was just about even with a year ago. From here on, through August, our crushings will need to run about 15 percent below last year.”
There is no real price incentive for processors to cut back, added Wisner. “That's going to have to change through a very strong soybean basis and bean futures pulling ahead of bean product prices. That's still ahead of us.”
Wisner noted that the current setback in new crop soybean prices is coming from profit-taking and market correction.
“We should have strong support under November bean futures in the $7.50 area, with July in the $9.50 area. There is a chance on some additional strength based off those prices. How much, it's hard to quantify at this point. But the bean market can be extremely volatile into the summer because of the low carryover here and the deteriorating South American crop and the heavy role of fund traders in that market.”
The U.S. winter wheat situation could have a significant influence on the corn market and to some extent on soybeans, according to Wisner. “Winter wheat, especially in northwest Kansas, Colorado and southern Nebraska is not in very good shape for this time of the year. Subsoil moisture is low and yield prospects are significantly below normal.
“The soft red winter wheat crop in the Eastern Corn Belt, Mid-South and Southeast, looks to be much better.
“Total global wheat supply is very tight, near record low levels,” Wisner said. “With that situation, any serious problems in U.S. wheat will quickly translate into higher prices which would carry back into the corn market and affect soybeans in the battle for additional acreage this spring.”
There is also some downside risk to consider for corn and soybeans, according to Wisner. “For the past 20 years, nearly 80 percent of the time, we have seen corn futures declining from spring to fall. For soybeans, it's two-thirds of the time.
“Farmers may want to look at a scale up marketing strategy for new crop corn and beans, spreading those sales into the market between now and the middle of May, with a little shorter window on soybeans.
“The idea is to move sales into the market on an uptrend. I'm confident we will be moving back into an uptrend before too long in those markets, given the fundamentals.”