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Corn+Soybean Digest

Corn prices trading sideways, but for how long?


December corn futures ended the week at about $4.18 per bushel, up about a nickel and enough to add a little strength to the price discovery level for crop insurance purposes. And for farmers worried that prices could tank well under $4, it may be a sign to forward contract a few acres, says Dan O’Brien, Kansas State University ag economist.

“But I am more optimistic about the potential for higher corn prices, based on a reduction in corn acres and the chance to return to trend line yields,” he says.

The revenue protection price discovery level is the average December corn futures price for the month February. It currently sets at about $4.15. Depending on the percentage of acres protected, revenue insurance provides a little safety net, which may add more comfort in making more marketing decisions.

Many fear that an expected drop in corn acres won’t be enough to keep prices at near $4. “USDA is pessimistic about new-crop prices and has an early projection of about $3.40 per bushel,” O’Brien says. “Others are also low in their price projections. If you hang your hat on those, then maybe you should be forward contracting some. But I see a chance for better prices with what we may see in lower production.”

It’s still six weeks before USDA’s prospective plantings report on March 31, and the question remains whether there will be a large reduction in corn acres. O’Brien says some projections indicate corn acres will be down by 2 million or more. With a trend yield of about 162 bushels, that would put new-crop corn production at about 13.5 billion bushels.

“That would mitigate some of the large-crop, low-price situation we see now,” he says. “The 171-bushel average yield for 2014 was by far the largest yield ever. Is it judicious to assume there would be that high of a yield again in 2015?

“So I think the issue of production uncertainly could give us better pricing opportunities than we see right now.”

Meanwhile, good corn export sales the past week have provided some support for prices. Farm Futures reports that the 39.5 million bushels of old crop deals reported to USDA last week puts the rate of sales 13% ahead of normal, though shipments remain slow compared to the government's forecast. 

The week’s USDA supply and demand report shows U.S. feed grain ending stocks for 2014-2015 projected lower with reductions for corn, sorghum and barley. Corn accounted for most of the reduction with projected use in ethanol production raised 75 million bushels on higher forecast 2015 gasoline consumption by the Energy Information Administration.

USDA says corn feed and residual use is projected 25 million bushels lower with the accompanying increase expected in supplies of distillers’ grains. Corn ending stocks for 2014-2015 are reduced 50 million bushels.

O’Brien says it’s still early in the year to project harvest-time prices, based on current data. But reports of slower corn seed sales may be an indication of lower farmer planting intentions as spring approaches. 

TAGS: Corn
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