Highlights

Asian buying expected to continue until March    Feed usage expected to increase but profitability may affect buying    Strong ethanol prices to further boost corn demand   Feed users may switch to wheat as prices go back to normal

January 28, 2008

 

No let up in buying expected, despite US$5 per bushel corn

 

 

Despite high prices, US corn exports are showing no signs of slowing, with Asian buyers making up the bulk of buyers.

 

On Friday, December corn, which represents the crop harvested in the fall, settled 7 1/4 cents higher at US$5.09 3/4 per bushel.

 

Importers might have been taken by surprise in the recent USDA crop report and are scrambling to ensure coverage, said Joel Karlin, marketing analyst at Western Milling in Goshen, Calif.

 

With few USDA reports of any significance due until the planting intentions on March 31, importers who need coverage will continue to buy, "preferring the known quantity (old-crop corn) versus the unknown (new-crop corn) until the new crop is in the ground and progressing well," Karlin said.

 

For the 2007-08 marketing year, which ends Aug. 31, the USDA projects total corn exports at 2.45 billion bushels.

 

US farmers will plant the majority of the new 2008-09 crop from April to mid-May.

 

Corn usage remains strong despite the highest futures prices since 1996.

 

Chicago Board of Trade corn futures have recently rallied to over $5 per bushel on ideas that 2008 corn acreage will need to remain at high levels to supply enough of the grain to domestic and international customers, and in an effort to ration demand.

 

Despite a record 13.074 billion-bushel crop in 2007. Corn ending stocks rebounded only slightly to 1.438 billion bushels from the 1.304 billion left over from 2006.

 

USDA expects corn for feed usage to increase this year, but current profit margins are negative for cattle, said Jim Robb, agricultural economist with the Livestock Market Information Center, in Lakewood, Colo. Hog and poultry production has increased more than expected, but profit margins have also turned negative for these markets in the past couple of months, he said.

 

Still, there should not more than a slight change in feed demand for at least the next four to six months based on the number of animals currently in the production pipeline, said Robb.

 

There are more factors involved in profitability in the livestock industry than just the price of corn and corn may be a more minor factor than people assume.

 

Still, if corn prices remain high or increase, demand for corn from the livestock industry will decline six months out, particularly from the pork and poultry sectors, he said.

 

As ethanol prices have firmed since the low prices last fall, the industry would also be able to absorb higher corn costs, indicating strong corn demand from that sector as well, an analyst said.

 

"Current ethanol producer operating margins are near breakeven and plants are continuing to produce ethanol," said Dave Wilson, analyst and vice president at Morgan Stanley.

 

Ethanol prices are more dependent on the price of gasoline and crude oil, with corn only one variable in the ethanol pricing mix, an analyst said.

 

The increase in the Renewable Fuels Standard as part of the 2007 energy bill will also support ethanol prices and demand for corn in 2008.

 

However, there were some who argue that higher corn prices this year could trim demand. Dan Basse president of AgResource Co. Rationing argues that US$4 per bushel corn has trimmed demand and if it rises higher, demand would be curtailed further. The scale of cutbacks is not apparent now.

 

However, it's occurring in the livestock sector as producers are slowing their feeding rates of corn and switching to distillers grains, he said.

 

In addition, there should be a significant increase in global wheat feeding this year as a new wheat crop becomes available, according to Basse. US soft red winter wheat crop production has a good chance to be over 500 million bushels, so increased wheat feeding will take place in the second quarter.

 

US corn exports have been strong this year due to the lack of global wheat feeding but that is expected to change, with an increase in world wheat production, said Basse.