GRAPEVINE, Texas – Corn prices could be in line for another downward adjustment, according to U.S. commodity group officials.
Slumping demand and the forecast for another large crop has soured the corn market outlook.
“The whole dynamics of the corn side have changed dramatically and are going to continue to change over the next six to eight months, so you may see corn pricing drop,” said U.S. Wheat Associates chair Michael Edgar.
Bob Dickey, president of the National Corn Growers Association, said nothing to dispel that notion when asked about this year’s corn crop at the 2009 Commodity Classic conference.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
“I am concerned about the demand base that we’ve worked hard to establish over the years,” he said.
The U.S. Department of Agriculture expects 1.75 billion bushels of exports in 2008-09, down 28 percent from the previous year. Corn industry officials predict a further deterioration in 2009-10 because of the global economic meltdown and the strengthening U.S. dollar.
Perhaps more worrisome is the outlook for the U.S. feed market given the plight of the livestock industry, which is suffering through one of its worst periods in recent memory.
Cattle numbers are the lowest in a long time and while the hog industry hasn’t contracted, producers are marketing pigs at lighter weights.
“We’ve always gone through peaks and valleys, but right now it has been a long valley for the livestock producer,” Dickey said.
The ethanol industry, which consumed 30 percent of the 2008 U.S. corn crop, has been besieged by a combination of high input costs and falling ethanol values. By the end of 2008 it was operating at 75 percent of capacity, with 23 plants idled.
The good news for growers is that U.S. law requires 11.1 billion gallons of renewable fuel in 2009, up from nine billion gallons last year, almost all of which will come from corn ethanol. The bad news is the mandate is under attack from groups opposed to ethanol.
Despite the dismal demand outlook, U.S. producers are expected to plant 85.1 million acres of corn, down one percent from the 86 million acres sown in 2008, according to a Bloomberg News poll of 14 crop analysts.
David Ward, chair of the National Corn Growers Association’s production and stewardship action team, agreed plantings will likely be in that 85 to 86 million acre range.
Ward said there will likely be a bit of a decline in the northern corn belt where he farms because of high fertilizer costs last fall. Some growers scrimped on fall fertilizer application, so those acres will go to soybeans.
Producers in the southern corn belt apply their fertilizer in the spring and input costs have fallen dramatically recently, but so have corn prices. Ward expects close to normal corn plantings in that region.
Corn yields are increasing by 2.5 percent a year, which means producers should get another four bushels per acre from next year’s crop. That would more than compensate for the anticipated one million acre reduction in plantings.
Dickey said a lot of producers are proceeding with a corn-on-corn rotation because it still pencils out as one of the best options. However, he worries about weak prices.
“The margins this year could be quite close, they could be squeezed,” he said.
“I’m hopeful that most producers this coming year have their risk management tools in place and know their banker on a first-name basis.”
A Bloomberg poll forecasts 78.7 million acres of soybeans, up from 76 million acres last year.
“Right now it looks like there is going to be a swing towards soy,” said John Hoffman, chair of the American Soybean Association.
From his conversations with farmers, he expects at least 80 million acres of the crop.
Hoffman said there will be a four-week supply of soybeans at the end of the 2008-09 marketing year, which is dangerously low.
China has imported lots of U.S. soybeans in an effort to fill the void left by the Chinese government buying domestic soybeans to build its stocks and bolster its industry.
Hoffman expects continued strong Chinese demand in 2009, especially in light of the drought-stressed South American soybean crop.
Johnny Dodson, president of the American Soybean Association, said growers have seen what’s happening in South America and are responding by increasing acres.
However, he shares corn grower concerns about weakening domestic feed markets.
