Filed under: Biofuels, Corn, ethanol, Farm | Tags: biofuels, Corn, corn market, corn prices, farm, marketing, weather
The market lately has been quite good for corn, perhaps better than many would guess, but it is not good enough for farmers, and so far they seem to have the upper hand.
I stopped in at our local ethanol plant today and had a talk with their corn buyer. He is having trouble getting farmers to cut loose and sell corn. The ethanol plant is not running out of corn, but he is not buying as much as he expected. At this time of year he would like to have most of the corn he needs for next October under contract, for quite a few years he has been able to do just that, but not this year. As of now he only has 10% of his October needs under contract.
Near by months are also contracted below where he would like to see. At the moment they are emptying bins that they had hoped would not be needed until spring. Why the trouble buying corn? They have the best price in the area, there should be no trouble getting all the corn they need. Farm storage is full and just waiting for sales to be made.
Today a little of that corn was purchased. The corn market passed a phycological level. His bid was over $6 at market close. The phone started ringing with people wanting to sell corn.
The phycology of the market is huge as far as farm folks are concerned. Yes, they realize that demand is down. Yes, they know that corn is selling at higher levels than it used to in the years before 2010. Farm folks have read all of those articles by farm price prognosticators saying that corn prices must go down. They understand that selling corn at a price so close to that of wheat cannot continue. The fact is, that corn is not selling at prices that were received last year at this time. Farm folks want those higher corn prices, and are willing to hold corn for now to get them.
It is a high stakes game of chicken. Many farm folks have penciled in $7 corn on their budget for the coming year and promised a premium price to rent or buy farm land, a price that must have $7 corn to be profitable. Now that $7 corn looks like it will not come back, they are holding on to the corn they now own in hopes of a better price. What if that day does not come.
Currently, end users of corn are bidding up in hopes of shaking some of that corn loose. As long as the corn market continues in its present sideways trend they will continue to do so. What is going to happen when we break out of that trend?
I have to admit it, there is a slim possibility that prices will go up again. Corn demand could return to the levels it was a year ago and we could see $7 or higher corn prices return. The drought in the central parts of the U.S. could reassert itself, or floods could return with the spring, and lower crop yields again in 2012. As long as the market sees some possibility of crop failures in other parts of the world, the market will continue to trend sideways, or even go up. But you have to feed the bull everyday, without daily bad news, the market will go down.
There is more potential for the corn market to go down. When corn and wheat prices stay too close together, livestock feeders turn to wheat as a cheaper substitute, thus raising wheat prices and lowering corn prices. Local corn is coming out of the bin at higher than average test weight and it will not take as many bushels to provide consumer needs. Some of the factors that have propped up the ethanol market for so long are soon to expire, and higher cost ethanol producers could go out of business, thus reducing corn demand. With higher meat prices, many families are reducing their meat consumption, this lowers the demand even further for corn. Year to year trends suggest that corn prices should be going down soon as speculators shift their focus to planting intentions and away from crop conditions in other parts of the world.
When will this game of chicken end? Who knows? I really am expecting a drop in the market soon, maybe even starting before the new year. If prices start to drop, I’m afraid they will continue down for some time.
For my part, I am taking advantage of the recent increase in prices to sell more of my 2011 crop. I have not yet priced any of my 2012 crop, but that is usual for me. I may just sell some corn under a minimum price contract to hedge against a price drop. Then, I’m going to sit back and watch for a while. I have enough corn and soybeans sold to cover my needs for planting. Any further sales are not needed today, I can afford to speculate on the future.
Let the game of chicken begin. I get to watch.
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