End users reap benefits of lower corn, soy prices

By Jason Sagebiel, FCStone | October 02, 2014

The corn and soy complex continues its downward spiral as yield and production potential continues to escalate. This year was greeted with ideal growing conditions, continued growing acreage and growing world stocks. This may not be positive news for the grain or soy producer, however, all aspects of the end-user are reaping the initial benefits. Ethanol, cattle, swine, poultry and milk producers are able to take advantage of the lower corn prices and establish profitable margins. 

The government reports still to come could be volatile but only from a sense of what will the ultimate yield and production picture be portrayed as. In the meantime, traders continue to expect much bigger yields to come. Weather issues may not be all out of trader’s minds at this time, frost potential worry will not be the cause for a market bounce but prolonged wet weather during harvest could be a cause for concern. That could be supportive to the market if it were to come to fruition. In September the USDA projected a yield of 171.7 bushels per acre with production equating to 14.395 billion bushels. With carryin at 1.181 billion bushels total supply equates to 15.607 billion bushels. Demand increased, as it should with lower prices.  Corn for ethanol and feed is expected to be 5.125 billion bushes and 5.325 billion bushels respectively. Exports are projected to be 1.750 billion bushels.  Overall carry-out was projected right at 2.0 billion bushels  vs. 1.181 billion bushels  a year ago. One thing to note a year ago at this time, corn carryout was 1.855 billion bushels and was revised to 1.181 as corn end-user sectors increased. Look for bottom side support corn as producers hold onto inventory. The support will come in the form of flat price, the cash market and spreads.

With a growth in U.S. corn production, world corn carryout was pegged at 187.82 million metric tons vs. 173.08 million metric a year ago and 138.15 million metric tons in 2012/’13. As American farmers go to the fields for harvest, South American producers head to fields to plant.  With potential weather woes in South America, well, this may be the only buoyancy opportunities this winter and early spring.

The stocks report at month-end revealed more corn out there in inventory.  Nationally on farm stocks were 462 million bushels vs 275 million bushels a year ago and off-farm the number was 773.68 million bushels vs. 546.18 million bushels a year ago.  Ultimately one should expect to see an overall increase to carryout in the October supply/demand report.

Corn prices

 

High

Low

Close

9/27/2014

3.27

3.22 3/4

3.23

8/27/2014

3.65 1/2

3.62

3.65

9/27/2013

4.59

4.53

4.54