The corn market could experience an explosive rally this winter, says an influential U.S. crop and markets analysis company.
The late summer rains that saved the U.S. soybean crop did little to help ailing corn recover the yields it lost in the summer heat wave.
“We do expect an explosive rally,” said Allendale, Inc. analyst Joe Victor, whose company undertakes its own crop surveys.
“We can’t find a time dating back to 1980 that we have had a situation like now.”
Allendale is estimating a U.S. corn crop of 10.887 billion bushels, which while huge, is not going to produce enough crop to stop world stocks-to-use ratios from becoming perilous for end users.
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A stocks-to-use ratio reveals how much of a commodity is in stock compared to the amount expected to be used. When there is much more in stock than expected to be used, the price of the commodity is usually low. When more is expected to be used than is in stock, the price of the commodity is expected to rise.
Stocks-to-use ratios have been similarly tight before, but Victor said ethanol and biodiesel demand in the crop markets have upset all the old assumptions.
“The entire world has gone so completely overboard” in turning crops into fuel products that a rally could ignite from anything this winter.
“We just believe the demand domestically as well as globally is going to be tremendous.”
But Victor did not expect corn prices to begin to rise until after mid-October, when U.S. farmers will lock in loan deficiency payments and end users will begin to worry about locking up their winter supplies.
He expects corn prices to hit a low of $2.25 to $2.35 per bu. before rising toward a possible $3.40 to $3.60 for March and July futures as the winter wears on.
But Victor cautioned farmers not to assume booming rally prices will last. The world has shown an ability to massively increase corn production from one year to the next, as it did between 2003 and 2004, and it will likely do so again.
Prices could fall by 60 to 80 cents per bu. by December 2007, so growers should take advantage of a winter rally to start pricing the 2007-08 crop.
