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CME: Corn the Main Focus of Market Conversations

by 5m Editor
5 October 2010, at 12:13a.m.

US - Corn futures appeared to stabilise on Monday following a sharp retracement last week, write Steve Meyer and Len Steiner.

Much of the conversation in the market continues to focus on the USDA stocks report at the end of September which showed 1 September stocks at 1.707 billion bushels, about 300 bushels larger than previously expected. For much of the last two months corn futures have gained on reports of disappointing yields and prospects for potential demand rationing in the coming year. The upward revision in corn stocks allays for the moment such concerns but plenty of questions remain. First there is the issue of accounting for old and new corn crop supplies. A number of analysts have pointed to the possibility that corn elevators may have taken advantage of the early harvest in some areas to bring in new high quality corn and mix it with the poor quality corn from last year’s harvest.

Jerry Gidel of North American Risk Management notes, however, that “some elevators might have taken advantage of better new crop quality to meet previous old crop export and feed commitments, but this amount of the total is likely rather small since the largest amount of off quality supplies are located across the Midwest, not in the Mid-south.” So the new crop theory may explain a portion of that 300 million bushel adjustment to ending stocks for 2009/10 but not all. It is also possible that after exporting and sending to market much of the good quality stuff, elevators have found it increasingly difficult to ship product in the period June - August, leading to a smaller than expected use, especially for feed. Again, this may help explain some of the discrepancy but not all of it.

Finally, as Gidel notes, industry will have to come to terms with the fact that some of the inherited corn will likely never be suitable enough for use as feed or ethanol, let alone export. The supply of unusable corn may still be part of that 1.7 billion stocks number but it could quickly evaporate once elevators write it off. The supply of corn on the ground today appears a lot better than it did a month ago. But reports of poor yields persist as harvest moves west. A few private estimates now peg the final corn yields at around 158-159 bushels per acre. This could leave ending stocks for 2010/11 at around 1.2 billion bushels (based on use projections in last USDA S&D).

So even with the upward adjustment in ending stocks, the stocks/use ratio remains the lowest since 1995/96. To highlight why markets remain nervous, consider the implications of overstated beginning stocks and projections for feed use that some think are too low considering the modest expansion in livestock and poultry production into next year. Trade also expecting some indication from EPA whether the ethanol blending limits will be increased to 15 per cent for cars produced after 2007. The decision may not have an immediate impact on ethanol demand for corn but it opens the door for increased corn use down the road. Given current projections for tight supplies and higher demand 2011/12, the battle for acres this spring promises to be as fierce as ever.