New contract lows hit in nearby corn futures

By Jason Sagebiel, FCStone | August 28, 2014

August is proving to be a month of making new contract lows in nearby corn futures. Soybeans had the same type of trade but the contract lows were for new crop. Mild temperatures and scattered moisture in August despite a dry July triggered some sell-off.

Benefitting from the price decline has been all end-users of corn. With underlying prices staying supported in commodities like ethanol, cattle, hogs and poultry margins in these industries have been exuberant. So the need for corn is ever present and that has been illustrated by the tight basis levels in the market place in the latter weeks of August.

In the meantime various private analysts have released final yield estimates with many predicting a national yield above the 170 bushel per acre mark. The USDA released the August yield figure at 167.4 bushels per acre and that is expected to increase in the September according to most traders. In the latest report, old crop corn carry-out declined by 65 million bushels due to increases for demand in exports and ethanol. With old crop carry-out reduced to 1.181 billion bushels, new crop carryin is lowered but easily offset by bigger yield potential.  Production for corn in 2014-’15 is projected at 14.032 billion bushels.  Demand from feed and residual increased by 50 million bushels to 5.250 billion bushels; exports and ethanol each jumped 25 million bushels from previous estimates. Overall carryout rest at 1.808 billion bushels, the highest level since the 2005-’06 marketing campaign. The new carryout to use ratio would be 13.5 percent, the highest since 2008-’09.

With a big crop looming, look for new crop carry-out to increase but as always low prices should encourage future demand into 2015 thus supporting prices. However, do not rule out a cool, wet fall which could very well push prices back to the $4 mark like observed in 2009. In other bullish news, one should expect to continue to see prices erode into the fall.

Dec. corn futures      

High Low Close
August 25, 2014 3.70 1/4 3.65 1/2 3.67 1/2
July 25, 2014 3.72 3.64 3/4 3.71 3/4
August 26, 2013 5.08 1/4 4.79 5.00 1/2