High inventories and favorable conditions benefit end users in the corn marketWritten by Natasha Wheeler
Rawlins – “There isn’t a whole lot of corn grown in Wyoming, but the corn market is still the barometer for investment money, management money and outside funds that come into agriculture,” stated Market to Market host Mike Pearson at the Wyoming Agricultural Bankers Conference in Rawlins in May.
Crude oil, coffee and corn are the three major drivers of volatility in the U.S. agricultural commodity market, according to Pearson.
“If we have customers who are end users, whether they are feeding corn or processing corn, how could they not be buyers in these markets?” he asked.
Corn is currently a cost effective and profitable commodity for many end users, and many corn producers are holding on to their yields in hopes of better prices.
“We are swimming in corn in this country, and it looks like we will be swimming in corn for 2015 and 2016,” he noted.
Unless something drastic happens, high corn inventories are likely expected into 2017 as well.
“I am a big fan of buying as needed,” Pearson remarked. “There is still a phenomenal amount of corn stored out on the farm.”
Upcoming corn yields are also looking strong, with favorable growing weather predicted for the 2015 season.
“Australia’s weather council made the announcement that they believe we are officially in an El Niño, so chances are that we will see adequate moisture across the corn belt,” he said.
Pearson believes that this year’s corn crop is shaping up to be similar to last year, with price highs occurring in the spring before planting.
“Corn planting is going into the ground without a problem in most places in the U.S.,” Pearson noted of this season so far. “Most of the corn is grown in the ‘I’ states, and most of that corn is in the ground in good condition.”
The southeastern United States is the only area that he pointed out as an exception for favorable planting conditions this year.
“If we get into July and things start to warm up and dry out, producers can look at putting some options in place,” he commented.
Next year’s prices may be less favorable for end users, and Pearson recognizes the advantage of keeping an eye on the markets.
“Producers should have a strategy to cover themselves for next year, but they shouldn’t break the bank. They shouldn’t go crazy trying to cover their costs,” he suggested.
Pearson also believes that end users will benefit from bearish market headlines, such as the record large carryout from last year, this year’s excellent planting conditions and China’s recent announcement about reducing imports.
“China is going to cut back their imports from 4 million metric tons to 2 million. It’s a drop in the bucket but it’s a bearish psychological headline,” he explained.
Bird flu is another headline that affects a small percentage of actual crop yield numbers but carries a large influence over market investments.
“At the end of the day, poultry isn’t a huge user of feed,” he stated.
Pearson estimates that poultry comprises about one percent of total feed utilization and that about one half of one percent of feed usage has been affected by bird flu so far.
“I think these bearish headlines are going to continue to give end users great buying opportunities,” he commented.