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Senior Advisor

When Will We See $6 Corn?

The Uniersity of Illinois conducted a study that concluded there is about a 50/50 chance of a recovery in 5 years.

 

http://farmdocdaily.illinois.edu/2015/09/how-long-will-it-take-until-corn-prices-recover.html

 

"... In about one-half of previous downturns, prices recovered within 5 years."

 

"for the other half of the previous downturns - the losing side of this 50:50 coin toss - the recovery took longer than 5 years. Often it took much longer, as in the 1860s (nearly 50 years), or the 1950s (14 to 22 years for the 1951-56 crops), or as recently as the 1990s (9 to 12 years for the 1995-97 crops). In addition, each of these longer recoveries, to what were then new record price levels, required a major event - a world war, a global crop failure, or the creation of an ethanol industry, respectively - to drive prices back up to their previous levels. These game-changing events are few and far between, and their timing is completely unpredictable."

 

A 50/50 chance of a rapid recovery might make one a little leery of making big investments that rely on higher corn prices.

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12 Replies
Honored Advisor

Re: When Will We See $6 Corn?

This brings to mind a question I recentky encountered in a titally different context:Are ethanol plants being mothballed widely, or just the specific one near us in Virginia? 

 

The creek behind our farm there has been closed since late July, due to serious cobtamination that essentially killed every fish in a stretch of it.  Investigation concludes that the main causal favor was a spill of stillage from the Vireol plant in zhopewell, Virginia.

 

Essentially, this syrupy substance was approved fjr animal feed by the VDACS, and a local trucking comlany was invokved with delivering and dumping the byproduct to backyard -style hog producers. In this one case -and possibly others in as many as 26 countues -  heavy rains created an overtopping event on a wallow that has evidently been filled with it.  

 

Microorganisms in the eater evidently really liked the stillage, as they bloomed, consuming all of the Dissolved oxygen ( DO was 0.0.) Everything else, including one Endangered Species, seems to have died, and the water stinks, has E. coli at unacceptable levels.  

 

Suddenly, after opening to great fanfare and with $250,000 in public grant money dedicated to it in 2014,  the ethanol company had announced it was mothballing, as of August 31, citing crude oil Prices as the cause.  Since Vireol is a UK entity, my thinking is that being out of the country, after its byproduct killed16 miles of creek in the WOTUS, probably sounded like a good idea. 

 

Are ethanol plants shuttering their doors elsewhere, or only in our ( literal ) backyard? 

 

 

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Honored Advisor

Re: When Will We See $6 Corn?

This is only my opinion and I`m a poor marketer, but it appears to me that we are only a supply market.  If we have a small supply then the demand will have to bid up, if we have a large supply, no matter how much demand there is they won`t bid up.  I know that`s simplistic, but the talk of "prices have to get low enough to build demand" is kind of a fool`s errand, what really needs to happen is supply has to get low enough to build demand.  Now I know the guy that bought plowed up and planted a golf course probably wouldn`t want to hear that.

 

In the case of corn, 1 billion bushels of carryover is the magic number that gets those that buy corn nervous.  Lower than 1 billion bushel and the farmer is more in control...it must be fisable for farmers to dig in their heels and store up to 1 billion bushel of corn and that forces demand to bid up accordingly.

 

I think that 2012 drought extended the "party" one year longer...hindsight being 20/20  Smiley Happy   If this harvest ends with a 2 billion bushel projected carryover, that`s too much for demand to bail us out.  And we`re in this hamster wheel where we figure on each of our individual farms that we have to full out produce for our own bottomlines.   If weather cooperates next year, we are going to find ourselves in a very deep hole.  It`ll take a drought here or somewhere to bail us out.  With the rest of the world on fire and hunkering down we can`t count on 8% Chinese growth to take our extra beans off our hands, cheap oil ethanol isn`t gonna do much more.

 

Just my 2¢

Honored Advisor

Re: When Will We See $6 Corn?

Please read my post about the ethanol plant near us idling.  I would like your take on the situation. 

 

I am wondering how much impact Avian flu and PRRS 174 and whatever PEDV is still kicking around the hog farms, are having on demand for corn and beans.  The pigs simply cannot be in the pipeline that used to be.  

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Honored Advisor

Re: When Will We See $6 Corn?

I heard of a E-plant in Wyoming shuttering, to be honest i`m surprised they allowed any ethanol in that state  Smiley Happy   I think those outer regions of the cornbelt will slow down or close first, east coast ethanol demand and availability was always a bugaboo to begin with.  With the bird flu, it was maybe 60 million birds?..maybe 100 million bushel of corn use involved?  it doesn`t help but it isn`t alot of corn in the scheme of things, plus the bird houses are getting back on line.  With hogs, the price is good, I think riding on the coattails of high priced beef.   They say China cut their pork numbers, perhaps they`ll be looking here for a supply?  I`ve heard gurus say there`s plenty of hogs, the PEDV didn`t cause the problems once thought and some expanded through it.   With ethanol the DDGs was a big source of the e-plant profit and China imported our DDGs, well now that`s all on thin ice.

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Senior Contributor

Re: When Will We See $6 Corn?

The three I know of around here are still going strong.   In fact, the closest one just had a train pull in to fill.  Saw it when I was in town.

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Veteran Contributor

Re: When Will We See $6 Corn?

We are killing 10-12 percent hogs more than a year ago-our saving grace as I am a independent hog producer is weights have come down about 10 lbs over year ago levels. All the ethanol plants around me are running maybe not at full bore because this is the time of year they like to idle back for maintenance. They know new crop corn is just around the corner and the basis for oct. for farmers needing to sell grain  will be terrible. I did get a flyer yesterday on a new etahanol plant that wants to get built in S.D. 50 grand to get in. I may invest in it. The 2 plants I have invested in has been very profitable-but on them I was in on the ground floor. As far as 6 dollar corn BA is right it is all about demand, A drought next year we may see 6.00. Another bumper crop we'll probably see less than 3 and then the ethanol shares really pay off.

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Honored Advisor

Re: When Will We See $6 Corn?

BA & Denny stated the case for demand...... And with ethanol being a huge success as an fuel additive and not going away I sort of agree....

 

But I think inflation can't be ignored..... It has been the elephant in the room that Washington doesn't want to talk about because it emphasizes how much we have lost in buying power.... 

Corn may reach $6 again quicker than some think just because it may soon cost $6 a bushel to produce..

Devaluing the dollar is just too much a factor in surviving enormous government debt and mandated regulation.

 

just my opinion

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Senior Contributor

Re: Some will see it this year

Those that invest $500 per acre to produce a crop of corn and only harvest 83 bushels per acre.

 

How does the crop look around IA CITY, Jim?

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Senior Advisor

Re: Some will see it this year

A windshield look says crops are average to better, but several respected farmers say there are weak spots in the corn and I don't dispute their word.  Beans look generallly pretty good. 

We didn't have as much disease and some had feared.

It's hard to say - highly variable.  Average to better is my guess, but I could be too high.

Some corn is drying down early.  Beans are still green except where some disease or sandy soil is showing up, and that is not a big part.

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