CHICAGO, Ill. — Corn prices could be heading as low as $2 per bushel by 2015, says DTN’s senior market analyst.
Darin Newsom told delegates attending DTN’s 2013 Ag Summit that the U.S. Department of Agriculture is grossly overestimating 2013-14 corn demand.
He believes demand will be far smaller and carryout much larger than the USDA is anticipating.
It would normally put downward pressure on corn and other grain prices, but corn is no longer the king of the grain industry.
Newsom said soybeans have stolen the crown, and the outlook for that crop is bullish.
He can’t fathom where the USDA came up with its forecast for 5.2 billion bushels of corn feed demand in 2013-14, up from 4.33 billion bu. the previous year.
He said cattle on feed numbers get smaller every month, and the hog industry is confronted with porcine epidemic diarrhea virus.
Newsom believes feed demand will be closer to 4.8 billion bu.
He thinks the U.S. will export 1.35 billion bu. of corn, down from the USDA’s estimate of 1.45 billion bu.
As well, ethanol corn demand could shrink to 4.73 billion bu. if the U.S. Environmental Protection Agency sticks with its plan to reduce the ethanol mandate. It would be down from the USDA’s December estimate of 4.95 billion bu.
When he adds it all up, Newsom believes total corn demand will be 725 million bu. smaller than the USDA is forecasting and that ending stocks will be 2.5 billion bu., up from the USDA’s estimate of 1.8 billion bu.
It would result in a bearish 20.4 percent stocks-to-use ratio.
“Only a few times in the recent past have we seen ending stocks-to-use this high,” said Newsom.
“Fundamentally, the corn market seems doomed. There’s no way around it.”
He asked farmers to guess what the national average cash corn price was in years when the ending stocks-to-use ratio was that high. They gasped when he said it was $1.95 per bu., which is equal to the government loan price for the crop.
“I’ll ease your mind slightly. I do not think this is going to happen,” said Newsom. “I don’t see that happening this year. Remember that. This year.”
He said it’s because beans will prop up corn.
“Soybeans are expected to provide the support that keeps the corn market from falling apart in 2014,” said Newsom.
He thinks soybean prices are heading up because of the bullish supply and demand outlook and bullish futures market, where nearby contracts are priced higher than deferred contracts.
Newsom believes soybeans are even tighter than the USDA is forecasting because it refuses to increase its 2012-13 export number of 1.32 billion bu., despite its own records showing that an additional 15 million bu. were shipped.
“It’s a far tighter situation to start the 2013-14 marketing year than what USDA is reporting,” he said.
“I still think soybeans have the best potential to move higher, particularly over this first quarter of 2014 before we get potentially swamped by South American supplies.”
He is forecasting that the national average cash price for old crop soybeans will be $13.90 to $14.80 per bu.
“There is an outside shot at getting the cash market well above $15.”
Newsom thinks new crop soybean futures could rise to $12.10 to $12.40 per bu. from about $11.60 this week.
Old crop prices are more attractive because the potential for a huge South American crop is limiting any new crop rally.
He believes there might be potential for another 30 to 50 cents per bu. on old crop corn cash prices.
Cash prices could attract the attention of commercial buyers if they stay low enough long enough, which in turn could spur investor interest in the commodity. He believes the December 2014 corn futures price could get as high as $5.30.
Corn might look attractive for growers in 2014 if that happens because the break-even price is $4.30 to $4.50.
That’s where things could get dicey. If growers decide to plant 92 to 95 million acres of corn and add another 15 billion bu. to supplies, it could push corn into $1.95 per bu. territory in 2015.
Newsom said there is not a lot of reason to be bullish about wheat because of the global glut. The U.S. could have a tough time competing against other exporters if its dollar rises.
The July 2014 futures contract indicates an uptrend for wheat, and Newsome thinks it could climb back into the $7 range again. However, rallies will be short-lived.