The corn market is balancing several factors as we move towards the US planting season. On one hand, we have the bearish factors of a record global corn crop and the largest year ending stocks since 2001. On the other hand, we are witnessing a rapid and sustained growth in exports along with weather complications taking their toll on South American supplies. Given the technical and seasonal factors at play in this market, I think we have finally put in the post 2013 harvest lows and could continue higher into the planting season.
The corn market, particularly here in the US has been beaten down in the fields and in the papers since the 2012 highs above $7. The corn market has declined by more than 45% since those highs and is now trading around $4.40 per bushel. This past summer’s growing conditions turned out wonderful after a late start and combined with the largest acreage planted since 1936 the resulting record harvest was no surprise. I’m willing to bet that we’ll see fewer acres allotted to corn this year after five straight years of acreage growth and increasing South American competition on the world market.
The record harvest’s fundamental impact on prices is obvious. The less obvious impact on prices revolves around China’s refusal of at least five different shipments of US corn after testing revealed strains of genetically modified (GMO) corn that they’ve yet to approve for importing. The issues have more to do with politics than GMO corn. China has known exactly what they’ve been buying and as the second largest global corn consumer they have continued to buy in bulk until last year turned out to be a record production year for Chinese farmers. Disregarding the political nature of the refusals, these actions still returned more corn to our storage bins thus, increasing ending stocks and further dampening prices.
The GMO issue is one that will continue to be dealt with. Currently, there are approximately 25 countries that either ban or strictly label GMO produce. Farmers here in the US are already beginning to conform to stricter global market standards as they realize that their products may be worth more on the global market rather than confining themselves to our own domestic markets. This is particularly true in the cattle market, which we discussed in, “Cheap Feed, Expensive Beef – What Gives?” The monopoly held by US farmers in the global grain markets is rapidly declining as Brazil and Argentina continue to add acreage and modern farming technology at a breakneck pace.
Shifting gears to the trade data helps set the stage for the current basing activity and higher prices I expect to follow. The USDA’s upward revision of exports will help shrink the ending stock number. This is a trend they expect to accelerate. The sustained demand picture is best viewed through the Commitment of Traders report where we can see that end line commercial corn users have been buying the heck out of the market under $5.25 per bushel. In fact, they’ve set a new net long record going back to 1983 and have held above the old level for a couple of months. When we combine this with the seasonal tendencies in the market, we should get all of the support we need to send the May contract back above $5 per bushel.
