November 20, 2008
Optimism on the part of some observers that corn prices will increase as the marketing year progresses is puzzling, says University of Illinois Extension marketing specialist Darrel Good.
Good says that at this point, it is not clear where the fundamental support will come from to generate such a recovery. At the risk of sounding like a broken record, a recovery in financial markets and energy prices will likely be required to generate higher corn prices in the near term, he added.
The corn market continues to struggle with a number of negative fundamental factors on the demand side of the equation, Good argues. As a result, prices continue to hover just above marketing year lows.
Good says that the most significant fundamental factor influencing corn prices is the sharp decline in ethanol prices. Over the past 15 months, the price of corn has been highly correlated more than 90 percent to the price of ethanol. The price of ethanol December 2008 futures have declined from near US$2.35 per gallon in late August 2008 to the current price near US$1.67 per gallon.
Corn export demand was especially strong during the 2007-08 marketing year. Exports reached a record 2.436 billion bushels in the face of record-high corn prices. Demand was supported by two consecutive years of a shortfall in world wheat production, growing world economies, and expanding livestock production.
Good also mentioned that the relatively low value of the US dollar also made US corn very competitive with corn from other exporters. Strong export demand has given way to a much weaker scenario for the 2008-09 marketing year.
Record-large wheat and coarse grain crops in the rest of the world, slowing economic growth, and a stronger US dollar all contribute to that weaker demand scenario. The USDA projects exports during the current year at a 4-year low of 1.9 billion bushels, 22 percent below the record shipments of last year.
Good says 3 sources of information help monitor the pace of exports and export sales as the marketing year progresses. These include the weekly USDA export inspection report released on Monday, (November 17) the USDA's weekly report of export sales released on Thursday, (November 20) and the Census Bureau's monthly report of exports released with about a 6-week lag. The Census Bureau estimates become the official estimate of exports carried in the USDA's supply and demand balance sheets.
Through the first 10.5 weeks of the 2008-09 marketing year, export inspections lag the total of a year ago by 38 percent. Through November 6, total export commitments lagged those of a year ago by 43 percent.
To reach the 1.9 billion bushels for the year projected by the USDA, new export sales need to average about 29 million bushels per week and the average for the 3 most recent reporting weeks was 16.3 million, Good added.
Good stated that finally, the Census Bureau estimates of September 2008 corn exports were 20 percent below that of September 2007.