Oversupply keeps corn in doldrums; rally unlikely

DTN analyst expects a year over year 13 percent drop in corn prices , but soybean picture looks brighter

CHICAGO, Ill. — Don’t expect a price rally in the crop that is the price leader for the grains and oilseed sector, says an analyst.

Darin Newsom, senior analyst with DTN, is bearish on corn, which is already mired at the lower end of its historical price range.

He typically bases his analyses on technical charts but this year it is hard to ignore market fundamentals.

In its September ending stocks report, the United States Department of Agriculture forecast U.S. corn carryout at 2.3 billion bushels, the highest in 30 years.

Its corn stocks-to-use ratio is 15.7 percent, which is the highest since 2005-06, which was in the pre-ethanol era.

A carryout of that magnitude should correspond with a U.S. average cash price for corn of about US$3 per bushel but in 2016-17 the average was $3.20, suggesting corn may be overpriced.

Old crop futures prices are in the $3.30 to $3.50 range and are not budging.

“Every time we try to rally, the market seems to get hot again. There are lots of sellers with 2.3 billion bu. still sitting out there somewhere,” Newsom told delegates attending the 2017 DTN Ag Summit.

He believes it will be difficult to get the normal 10 percent, or 31 cents per bushel futures market rally that typically occurs between mid-October and mid-June.

There is a 30 cents per bu. carry between the December 2017 and July 2018 futures contracts.

“Almost all the seasonal move at this point is already built into the market,” said Newsom.

And basis is likely to remain flat because of the huge amount of old crop corn sitting locked up in bins across the country.

“It’s going to be hard, very hard for the corn market to rally,” he said.

Over the last three years in the corn cash market, the March lows have been trending lower. The summer highs have also trended lower.

“It’s a classic definition of a downtrend,” said Newsom.

He forecasts a national average cash price of $2.80 per bu. in 2017-18, down 13 percent from last year.

The corn market needs a supply-side shock in the form of bad weather. The problem is there was bad weather last year and many U.S. farmers still got near record yields.

There is little help on the demand side. Corn shipments are well behind the pace of the last three years and Mexico, the top customer, says it will buy more of its corn from Brazil due to political tensions with the U.S.

Newsom thinks ending stocks could blossom to three billion bu. in 2017-18 with an oppressive 18 percent stocks-to-use ratio.

The December 2018 contract for new crop corn is around $3.90 per bu. and history shows it will likely drop 23 percent to $3 by mid-October 2018.

He is more bullish on soybeans despite depressing fundamentals for that crop as well.

The USDA estimates ending stocks of 301 million bu. and a stocks-to-use ratio of 7.1 percent, both the highest since 2006-07.

Old crop futures spreads are bearish, suggesting that, like corn, it will be hard to get the normal seasonal rally in 2017-18.

Despite this, Newsom said he remains bullish on soybeans because global demand remains very strong due to continued buying from China.

There are also positives in the technical charts that give him some optimism.

“I like what I see on the soybean charts. I think it still has a potential to rally,” he said.

“Until South America actually starts harvesting I think we have a chance to rally beans.”

Newsom said new crop soybean prices could go along for the ride until the USDA’s March plantings report comes out. He thinks U.S. soybean acres could surpass corn planting next year. He said new crop soybean prices are decent and growers should consider locking in 2018 contracts.

About the author

Comments

explore

Stories from our other publications