The world’s largest corn company expects prices to head higher by next crop year.
Monsanto says global oversupply of the crop has temporarily pressured prices lower, but that situation will be rectified by continued robust demand.
“In fact, the world is consuming the current oversupply at a record pace with demand for corn growing by an average of 1.3 billion bushels per year over the past three years,” Monsanto chief executive officer Hugh Grant told investment analysts during a conference call announcing the company’s fiscal year 2015 results.
“More than 90 percent of this growing in demand over this timeframe has been driven by feed and underpinned by middle-class protein consumption, which we ex-pect to continue.”
The company is forecasting de-mand to continue growing at a more conservative rate of 500 to 550 million bu. a year.
“With this level of demand and yields at trend line, we expect the global corn supply-to-use ratio to return to a range supporting the corn commodity price improvements into 2017 and beyond,” said Grant.
Monsanto believes the improved stocks-to-use ratio will result in a corn price in excess of $4.50 per bu. starting in 2017. That would help elevate other grain and oilseed prices.
Arlan Suderman, senior market analyst with Water Street Solutions, thinks that could happen sooner.
World corn stocks are not as onerous as some people think. There are almost 70 days of supply on hand, down from 72.4 days last year. It is not that much bigger than the 40-year low from four years ago of 54.6 days of supply.
“We’re operating off of a just-in-time supply,” said Suderman.
“The market is fine with that until we have a problem. The gist of what (Monsanto is) saying is we’re going to slowly develop a problem, even if the weather is good.”
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Suderman said there is a good chance next year’s weather won’t be conducive to high yields, and that could mean corn prices will reach $4.50 long before 2017.
World weather is strongly influenced by a strong El Nino that is expected to peak by the end of this year.
Some weather analysts believe there is a good chance it will be quickly supplanted by a La Nina event by summer, which would bring hot and dry weather to the U.S. Midwest.
“(The $4.50 price) could be reached in the next six months, easy, if that scenario unfolds,” he said. “I’m friendly toward corn prices. I always have to be careful (saying) bullish because I’m not sure how people interpret that word. Some hear that and say $6.”
Suderman is less friendly than he was before the U.S. Department of Agriculture issued its latest U.S. corn yield estimate of 168 bu. per acre.
Water Street was expecting the number to be closer to 160.
He believes corn could receive some support from soybean prices, despite a record South American harvest.
“Demand is strong, so I do see some more upside in soybeans that could pull corn higher going forward,” said Suderman.
Monsanto sees a 20 percent or greater decline in corn planting in Argentina and in Brazil’s summer season.
“However, we expect U.S. and Brazil safrinha (winter) corn acres to be up modestly with the U.S. acreage increase coming at the expense of soybean acres,” Monsanto president Brett Begemann told investment analysts.
