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Serving: United States

Here’s why corn futures have lost their luster

Large supplies outweigh demand hopes in the short term.

When the USDA lowered planted corn acreage at the end of June down to 92 million acres versus previous expectations of 97 million acres, it seemed that corn futures prices had found firm footing. It felt like an overly bearish price forecast could be thrown out the window. 

Unfortunately, corn futures received a sucker punch this week when preliminary yield estimates were released by various private forecasters, including Farm Futures (here).

With a lack of a stressful summer weather event, trade is now anticipating record or near record yield for corn, putting total production close to 15 billion bushels.

The reality of the crop potentially being near 15 billion bushels in total production means that new crop ending stocks are again burdensome as they may inch closer to that 3 billion bushel mark.

While export demand has picked up and been impressive, the notion of a 15 billion bushel crop overshadows all at the moment.

Ethanol demand improves

While demand for ethanol has improved since spring, demand could diminish as summer comes to a close and summer road trips are ending.  With some schools opting for at-home learning, and businesses allowing parents to work at home to coincide with children’s school schedules, there will be fewer vehicles on the road as the school year begins.

Weekly U.S. ethanol production was down from last week and last year. Ethanol production in the U.S. dropped 27,000 barrels per day to 931,000 barrels per day. This is down 10.5% from the same time last year.

Meanwhile, ethanol inventory in the U.S. rose 74,000 barrels to 20.35 million barrels.

USDA report impact

Next Wednesday we will receive the next Supply and Demand report from the USDA. This report will likely show the already anticipated yield increase.  What the trade will be eager to see is the old crop corn demand for exports and ethanol. Will those demand numbers be revised lower?

If those demand numbers are revised lower, then old crop carryout will increase, which will then become a larger new crop carry-in. That, plus a 15 billion bushel production number, will seal the fate for a near 3 billion bushel carryout. 

A number of this magnitude could pave the way for sub $3 corn futures prices, if realized.

Seasonal tendencies

Adding to the negativity is the seasonal tendency for corn futures prices to drift lower throughout the month of August. The seasonal reality is usually two fold; the crop is “made,” and old crop is getting moved out of farmer’s bins to make room for new crop. Many times this price drop lasts until “first notice day” for September corn futures, which is on Monday, August 31.

The reality: stay defensive on your marketing for now. As of this moment there are few glimmers of hope.  The one bright spot continues to be the dropping value of the U.S. dollar. If this continues, this will help exports in the future.

Lord knows we will have plenty of corn to sell to the world.

Reach Naomi Blohm: 800-334-9779 and
Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 
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