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Veteran Contributor

RE: Corn Prices vs. Demand

I understand that in an over supply situation, prices drop in part to create demand to use up the excess supply.  Looking at the current 2014 U.S. Crop and demand as shown by USDA, I feel that we are now in the how far down can we push the price mode by the funds and end users. Some of my reasons for thinking this are:

1.  The export sales report issued today showed 50 million of exports which must mean that we are fairly well priced vs. the world market so lower prices do not appear needed to stimulate demand.

2.  The ethanol demand for the first 47 weeks of the 2013/2014 marketing year is running 110% of the previous year and has been consistently above the 900 level in the EIA reports so lower prices are not needed to stimulate this demand.

3.  Those using corn for livestock feeding and dairy production should be enjoying a much lower cost of production and thus lower prices are not needed to stimulate this demand area.

4.  Brazil may see lower sugarcane production which might open up more markets and/or create less imports into the U.S. later this year thus helping to hold ethanol demand firm.

5.  Industrial profit margins with $3.70 DEC Corn are improved a great deal vs. last year so this demand area has no reason to need lower prices to generate or keep demand at the current USDA projected level.

6.  Current futures prices are low enough that some are already forecasting less South American corn acres this year.  Thus the lower prices may be doing their job of reducing future supply.

If, and I mean if, this is reasonable thinking, what we need to see is where the charts show the technical's indicate a major support area is.  I have seen some say DEC 14 Corn at $3.50 to $3.60 is a key support area.  If that holds into and/or just after the August 12th report, I look for the market to have a rebound following that report.

Another piece of the puzzle is the RFS ruling that may come out soon and this would remove uncertainty on what may happen there which could be price supportive.

Just my thoughts.

Fire away.

 

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4 Replies
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Veteran Advisor

Re: RE: Corn Prices vs. Demand

Not bad for a city kid
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Veteran Contributor

Re: RE: Corn Prices vs. Demand

1. Ethanol installed capacity is 5.3B bushels of corn demand.   No matter how cheap corn gets can't use more than that unless you build new plants.   New plants are not grandfathered under RFS and cant make RINS.  No one will build an ethanol plant that cant make RINS.

 

2.  The livestock industry will have to feed 5.5MMT of DDGS more this year than last no matter the price of corn.   This was the amount going to China that has been stopped becasue of MIR 162.

 

3.  The world corn market is going to lose 5 MMT of business no matter the price of corn becasue of harvest time rains on wheat in Germany and France.   This feed wheat is already priced under corn in the world market.   Thialand and South Korea bot cargoes this week.

 

There are some headwinds to the thought that cheaper prices bring more demand.   Seems to me the role of price here is to discourage production.

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Veteran Contributor

Re: RE: Corn Prices vs. Demand

USDA is already showing 200 million bushel (5 MMT) of lower U.S. exports in the 14/15 marketing year vs. 13/14 and has just 5.050 billion being used as ethanol.

 

I agree that if the crop reaches the 14+ billion level in 2014 we may need lower prices to discourage 2015 U.S. Corn acres.  The jury is still out on how large of 2014 production we will see, in my opinion.

 

Thanks for the reply and thoughts.

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Honored Advisor

Re: RE: Corn Prices vs. Demand

China probably can't afford to wait too long before they will really need the US corn or DDGs........

 

Plus, like it or not, the lower the price goes, the more gets used up.