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.
