Are Corn Prices Headed For $5.00?
Wednesday, November 23, 2011
Of the items listed above, large wheat stocks are the most legitimate of the five. An abundant supply of wheat definitely will be the most negative factor, possibly weighing down corn prices in the months ahead. It must be noted, however, that the USDA still does not show a dramatic increase in wheat used for feed in their wheat supply/demand tables. Item #2, large world corn ending stocks is simply not accurate. World corn ending stocks are extremely tight and world stocks-to-use ratios are record low. What has happened, however, is that other countries, such as the Ukraine, have increased corn production and thus entered the world corn export market. This is occurring because of high corn prices and due to the fact that the U.S. has been unable to increase corn production fast enough to keep up with rising demand. In other words, the U.S. has lost market share in the world corn trade. This does not mean, however, that world corn stocks are plentiful. A slowdown in the crush for ethanol is highly unlikely given that margins stand at a three year high. If anything, the USDA is low on their current corn crush projection. The talk of a large South American soybean crop has little to do with corn prices. And finally, hope of corn yields next summer coming in well above trend line is just that...hope. While acreage devoted to corn production will no doubt increase in the U.S. this spring, it's a fact that drought is spreading from the Southern plains into the western Corn Belt. If this situation persists into spring, producers in the western Corn Belt will be planting corn in very low subsoil moisture conditions.
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About the author
Dennis Smith has been a full service commodity broker specializing in grain and livestock trading for over 20 years. Dennis has a wide range of customers, many of whom are grain and livestock producers. Dennis develops and helps execute hedging and speculative strategies in his Daily Livestock Wire which is prepared each afternoon exclusively for his customers. Dennis grew up in Central Illinois before launching his brokerage career.
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