Corn demand

[NCcorntrader]

So I was having a friendly discussion with Mizzou last night, and we came to the conclusion that he is focused on supply, and myself demand with respect to the price of corn

Which got me thinking- the supply side seems to be the focus here: what are the stock levels? how much acreage lost? who is planting what? who is taking PP? etc

lets say there will be 5% less corn this year than last, heck even 10%. the price of corn on 6/8/10 was $3.37. the price has over doubled. how much has that reduced demand is the real question to be asking. most of you are doing your calculations based on a demand reduction of 0% as best I can tell, which means you are not analyzing supply AND demand, just supply.

[Nebrfarmr]

Locally, every feedlot, hog farm I know of, as well as the local ethanol plant has most of their corn for the year already contracted.  Anywhere from 1/2 to 2/3 seems to be had at or under $4, and 90%+ at or below $5.  At least locally, the high-priced corn isn't for much use, just to 'finish off' the pen of calves, hogs, or whatever.  The ethanol plant also can easily cut back 5-10% if corn is too pricey, but probably won't unless running at capacity causes them to actually lose money.

The people I have talked to also have from 1/3 to 2/3 of next year's corn contracted between $4 & $5 - the amount contracted, and price varies a lot from user to user. 

So from what I see locally, I really don't think that there will be much demand lost this year, as cattle & hogs are at profitable levels, and buying just a little high dollar corn won't change that.  What will be important is to raise enough corn so there isn't a shortage NEXT year.  If harvest doesn't pan out, it will be very easy to just raise less hogs, buy less feeder calves, and grind less corn into ethanol.  If prices are so high as to make that happen, it may be a while before the end users are comfortable pushing the envelope again.

[ag678]

I would not assume that just because an enduser bought corn from the farmer below $5 that they actually own it there.  I would say it is more prevalent on the livestock side for someone to just own corn, but on the ethanol side I would be very surprised if when they bought the corn they didn't do one of a couple of things.  They could have sold a corn futures to neutralize there position, they could have sold an equal tonnage of distillers to offset their corn purchase, or they could have locked in their margin by selling ethanol and distillers when they bought the corn.  Although spot margins have been pretty good for ethanol forward margins weren't as good so I would guess your ethanol plants in better shape hedged their corn position and took margin risk.  This is pretty standard procedure, anyone who thought that they could make money by buying inputs low today and selling outputs high another day or vise versa found there pockets were not big enough if they guessed wrong.  They are in the processing business not the commodity trading business.

As far as livestock guys go there is no standard, one guy might buy corn flat price, the next guy might buy corn forward and hedge it off and the third guy might just call the elevator every week.  Also each livestock system presents its own challenges, a farrow to finish operation is basically going to run until the bank shuts them off so they are a little more inclined to flat price corn if they like the price, because if they don't they still have to buy it vs a feedlot that has a choice to replace every 150-200 days and his inputs adjust to the current market.  If he doesn't buy corn feeders will get cheaper or live cattle most like will be higher.  If he buys corn high and it goes down he might have both high priced corn and high priced feeders.

It is really hard to know what everyone's position is based on how much physical corn they bought.  They could have it all priced or non of it priced.

[GoredHusker]

Interesting question.  There's a few things to keep in mind when trying to answer this question.  The first one is the fact that we have not had one single bearish report from USDA in almost a year.  Considering this, one has to come to the conclusion that a lot of end users are not fully covered with the raw product.  They may or may not be covered on paper.  The second thing to keep in mind is how large of a percentage the meat sector has fallen in the past couple of months.  Fat cattle alone have receded nearly 15%.

When cattle were trading in the $120's, I highly doubt there was any demand rationing with the price of corn.  Now that they are around $100, I'm guessing we'll see a fair amount of rationing.  I don't follow the ethanol margins that closely, but I was told by three ethanol plants that they would only offer contracts on distillers until August 1st.  They said if ethanol prices didn't go higher or corn prices lower that they'd be forced to slow crush.  Considering the poultry and hog guys didn't slow down in 2008 until the bank shut them down, I'd be inclined to agree with another poster that they're not slowing down right now. 

I can't really speak for livestock operations in other countries, but I read an analyst a couple of days ago that stated feed wheat globally is cheaper than our domestic corn price.  If this is correct, one would have to conclude there will be some if not a lot of demand rationing with regards to our exports. 

This really doesn't have much to do with supply or demand, but if the Fed implements QE3 it is almost a 100% guarantee that we'll make new all time highs in corn prices.   

[OK_Grains]

Just to add some color to the ethanol side, ethanol production and stock disappearance ( blending + exports ) are increasing over the last 3 weeks - ie crush is increasing, stocks are dissappearing. Ethanol prices tend to trade in sync with corn prices, so the margin remains a constant, so long as the gasoline blending demand is there.
The gasoline blending demand is there and some. The blending margin is still 30+ cents, not to mention the 45c blenders credit. So in theory ethanol could rally 75c / gallon on gasoline before the blender is forced to cease blending. The blenders and the distributors are fully set up to maximise blending, so to an extent the margin is a moot point too.
Rationing this year needs to come via export market ( has been slowing but not screeching and SAF and ARG are losing relative competitiveness ) as well as the livestock users. Livestock margins have fallen hard lately but they are not bunkrupt type of numbers and we have more cattle on feed ( drought in Southwest ) not to mention that big chicken is still rolling along ( they are hoping to make it to the new crop where margins are somewhat improved, so can expect them to keep using at low to negative margins ). We may or may not make it into new crop but either way, the ethanol usage will be robust.
And for what its worth, the ethanol producer ( highly integrated and sophisticated after the 2008 resturcturing ) use replacement margins not historic margins, for as you say they hedged out their exposure long ago if they bought $4 corn. On a replacement basis at $7.65 spot + basis they are still making a (small) margin. Whilst ethanol keeps following corn higher there is little arguement for ethanol rationing.

[animalfeeder]

It came out today that there are three very largr broiler operations that are going under, feed prices are taking them down. You guys who are trying to figure this livestock/poultry thing out are way off in left field. We CANNOT sustain these prices if we have to pay these prices or higher at harvest. Yes there are guys who bought cheep but there are way more who did not.

[Mizzou_Tiger]

you said it came out today.........weres the link........if its news its online.....please link........

also, pretty sure the big boys, ie Tyson or whomever will pick up the slack...........meat will not disappear...........

[rayjenkins]

don't know if it's the same ones animalfeeder is talking about, but this was out today

http://www.sctonline.net/articles/2011/06/08/news/local/news45.txt

[Mizzou_Tiger]

guys had other issues...........they filed back in February.............I doubt grain prices had much of anything to do with it..........and if it did there was some really bad management decisions made............

there is probably going to be more "weeding out" of the bad management operations.............it happened in grain production over the last decade..........get big or go home and/or find something else to supplement your habit.............the margins were so tight...........

[Nebrfarmr]

I can't speak for anyone but myself, but I have a piece of paper that states that I am to deliver XXX bushels of #2 yellow corn to our local Green Plains Ethanol plant in the month of July for a price of YYY.

I'm actually kind of ashamed of the price I sold it for, but the first number is a 4.  At the time, I thought it was a decent price.  My overrun (70 bushels) in my May contract was for $7.24, so can I just brag on that LOL?

Anyway, the point I am trying to make is that at least in the case of our local Ethanol plant, they actually own the contracts for delivery of the corn, and I think have hedged the ethanol price.