Grain markets: Reality setting in?
Over the past few months, the corn market has gone from a premium being paid for spot delivery, to a market that is paying holders of corn to store their grain for future delivery. Richard Brock explores.
By Richard Brock, Brock Associates
Only a few months ago, coffee shop talk amongst farmers was “corn prices will never go under $5.00 again.” Well, guess what? For October delivery cash, corn bids in Des Moines, Iowa are already $4.43. Lafayette, Indiana is at $4.72 and Hastings, and Nebraska is at $4.54, just to give a rough overview.
Over the past few months, the corn market has gone from a premium being paid for spot delivery, to a market that is paying holders of corn to store their grain for future delivery. A year ago, buyers of corn wanted it right away. Now, with supplies going up considerably, buyers are willing to sit back and let the market float.Our estimated ending stocks-to-usage ratio for the 2023/24 marketing year is 15.6%, up from 10.6% last year. Over the next few months, buyers are not likely to be bidding aggressively.
World production is up
Another major fundamental change that has occurred is the sharp increase in worldwide production due to high prices. Brazil has ramped up considerably and China production continues to grow as well.
Supplies in China are more than ample, and have been for quite some time. For the 2023/24 marketing year, their projected ending stocks-to usage ratio is 66.2% compared to our estimate of 15.6% for the United States. Are they building supplies for strategic uses to ensure they have ample supplies in case of a trade war? Who knows? But it does look very suspicious that they continue to carry such large supplies of corn. High prices have also encouraged sharp production increases Brazil and now their corn exports exceed ours. Not a good sign if you are looking for reasons to be bullish corn.
With cash prices now under $5.00 in the country, we would anticipate that farmer selling is going to be very light, and the majority of this crop will go into storage. History would indicate that under these circumstances, the corn market will likely go into a sideways trading range and will struggle to get above $5.00 per bushel. Over the past two years, the corn market has shifted from a seller’s market to a buyer’s market. No need to get in any hurry.
Richard Brock is Owner and President of Brock Associates.
