News & Commentary
April 12, 2014
Well USDA didn’t really surprise us on April 9th with the supply and demand projections. Ending corn stock projections in the US dropped by 125 million bushels to 1.331 billion bushels, bringing carryout to use ratio at .099%. That is a couple percent higher than in 2012 or 2013. I’m always a proponent of watching ending stocks and demand for indications of market direction.
As ending stocks increase so then prices usually fall. So it’s no big surprise that corn prices are less than last year. The intriguing thing to me is that each month USDA has put out the Supply and Demand estimates they are dropping the forecast this year. For example the March USDA report stated that corn stocks would end up around 1.456 billion bushel, in April that projection was 1.331 billion. So something is definitely going on.
That something is stronger export demand and feed demand that is staying stable. So now as we are approaching planting season spring weather will play a major role in the price of corn. Even though the ethanol demand has reached a plateau the overall demand for corn in the US is huge. Current demand estimates are at 13.45 billion bushels of consumption this year. So there is always a great deal of pressure on the markets to stay high enough to encourage production to meet and exceed this level.
Now with an uncertain start to the planting season with unseasonably cool weather possibly interrupting the planting pace, uncertainty is starting to develop. Markets do not like uncertainty and hence will many times build in risk premiums until the situation clears itself. So keep an eye on the planting pace and early spring growing conditions for price direction.
Wheat also is at an interesting juncture. Wheat conditions dropped dramatically from fall to spring. Particularly in SE Colorado, SW Kansas, parts of Oklahoma, & Texas. This area of the HRW wheat belt needs rains now! Not in a couple weeks but very soon. So if the rains don’t develop hard red winter wheat prices should respond. However, world stocks of wheat are adequate and as it appears today the world isn’t at risk of running out of wheat any time soon.
So I would expect the wheat market to stay under pressure as long as the rains are adequate and some other calamity doesn’t befall the crop, like an unexpected freeze. Wheat has priced itself out of the feed rations so in effect rationing has occurred to a degree.
So for now weather is the main event, but issues in the Ukraine, Middle East, Europe can at anytime rapidly change the picture. So stay tuned in and good luck!
Till Next Time,