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When Corn Goes POP!
The price of corn has moved up sharply higher during the last
couple of trading days. This time around, the newest USDA figures were
giving (short) traders headaches over U.S. corn inventories.
The United States is still one of the most important corn
suppliers on the global market. As a consequence, price expectations of
different specialists and analysts are being put up there. And there’s
more where that came from…
No, we are not running in circles. Last week, the price of corn again
went through the roof. For many readers this will deliver some déjà vu
feelings, but again corn climbed up almost 15 percent in only five
trading days. We were also stunned by the price movement, although it’s
become common action. It’s still difficult for a human getting used to
such vigorous moves on such a short notice. But getting used to this
kind of price action in the commodity complex is probably the best thing
we can do, as we are foresee more price madness in the coming years.
The reasoning behind the price action is mostly caused by the same
simple logic: a lack of sufficient supplies versus a huge demand. This
time around it was the latest USDA report on US stockpiles which made
shorts run for cover. The national inventory dropped to 6.5 million
bushels, the lowest reading since 2007. As a consequence, the price for a
bushel corn is again trading above 7.5 dollar, just a fraction from the
all-time high of 2008.
The impressive rise in price led to US farmers massively switching to
corn, leading to significant acreage gains for the grain. Official
figures are pointing at 92 million acres being planted this year, which
will result to the largest acreage increase since World War II!
Still, this won’t be enough to dampen future demand and to rebuild
inventories. The increased use of biofuels in the USA combined with the
enormous international demand, especially from China, led to a 200
million drop in corn inventories last month. The latest news from China:
they may be boosting their buying frenzy for corn this year, reaching
possibly 3 million metric tons by the end of 2011. “The economic growth
in China, and throughout Asia, is placing stronger-than-anticipated
demands on livestock, poultry and dairy supplies,” officials say. At the
current pace, we are seriously questioning if all the new corn acreage
will satisfy the global run on corn.
So, as some of you may know, the only cure for high prices are…
higher prices! All indicators are pointing in that way. We screen the
price developments in the future markets to research and project price
developments in the short-to-near term. Frequent readers will know that a
situation of backwardation is caused by an urgent and big demand for a
commodity, which in its turn causes even more upward price pressure. And
backwardation it is within the corn complex!
As a consequence, many traders and analysts have upped their price
expectations. Recent surveying by Bloomberg showed a large percentage
bullishness. For instance, Goldman Sachs raised their short-term price
target to 8.6 USD/bushel (3 month), which would lift prices by another
13 percent in the next months.
Now, we would normally get reserved when seeing large numbers of
bulls for a commodity. But with the current powerful fundamentals for
corn, we also have difficulty to come up with bearish scenarios that
could slam the price on a short term notice, black swan events left
aside. The underlying pressure is just too high. Maybe corn prices of
9-to-10 dollars per bushel (or more) could provide some relief to the
markets. Until then the price of corn will be popping on a regular
basis. For now, sit back, relax and enjoy the movie!
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your chart is a little off. it shows july corn as lower than may. july corn is right this second at a 7 half cent premium to may as it is the last old crop month available and so reflects normal storage contango relative to may corn. july corn has not at any time in the last 3 months at least been lower than may corn. have to question a poster whose chart does not reflect reality.
ethanol is symptomatic of everything that is bringing america low. for years they were content to keep it modestly rapacious, with under 10% of the corn crop going to ethanol as a sop to farmers when corn was regularly around $2/bushel. Then, as with so many other bad decisions, Bush decided to break all the barriers of prudence in his State of the Union Speech in 2004 and push ethanol.
Ethanol actually requires more energy in inputs to produce than it provides in the end. And so it actually makes our energy situation WORSE, and yet we are having the American Taxpayer SUBSIDIZE it massively. You really cant make this stuff up. Any politician who embraces it is worthy only of the compost heap, and that means the Senators from Iowa as well as all candidates who pander to the corn interests. Note I am not a Democrat, I have never voted for a democrat for anything ever and never will. But when somebody makes a disastrously bad decision they have to be called out on it for what it is.
Don't worry.. the day of reckoning is at hand.. tomorrows S&D report should show the 2010/2011 carryout at around 576 mil bus... a 15 day supply. Don't be short...
Ethanol is less efficient than gasoline; a hidden tax of 15% every time you fill up; if they eliminated Iowa as the 1st primary state, we would have more FRNs.
Oh wait; that's a zero sum game.
The "huge demand" is "stockpiling" in preparation for the coming monetary collapse.
When you flood the markets with liquidity and manipulate the commodity markets, you can only hold it down so much untill the barriers brake and the effects are double in size.
When the price suppression teams go to food corners, we'll need to expect a pop in the PM's followed by the basic metal markets followed by the oil markets and everything derived from them.
June/july will be a very interesting time to make money.
Removing all government subsidies for all farm programs is like taking a nuke to deal with an ant problem. You'll kill the ants and everything else around for miles.
I agree that government should not be subsidizing a program that uses foodstock for fuel, we have enough hungry people. But in case you haven't noticed, the number of family farms that are not mega operations has fallen to numbers that would not survive without some type of government help because the cost of farming, and the risks, are too expensive. This trend has been occuring since the 80's. Without the megafarms, America would not be the food producer we are currently.
That being said, way too much government money is going to corporate farms that without said subsidy, would NOT be profitable and would be closed down.
Government subsidies are used to keep the people in line. People who are hungry, get ideas about revolutions. People who are constantly hungry, well, they tend to take action to allieviate such pangs. There is a reason we are feeding 44.2 million americans on government food stamps. There is NO charitable program that can provide sustance for that many people.
"That being said, way too much government money is going to corporate farms that without said subsidy, would NOT be profitable and would be closed down."
GREAT! Give some of us small-time operations a chance to compete. Isn't that what capitalism is really about anyway. Competitive companies stay in business and uncompetitive poorly managed businesses go bankrupt? Sounds great to me. Got arable land?
And if you have some land what are you planting ?
Planted acreage doesn't have to be reported until July.
I'm trying to piece together the connection (if any) between the grain embargo in the early 1980's and the Volker interest crackdown. Volker was attempting to maintain the value of the dollar by raising rates; in order to prevent a collapse here we exported the pain to Russia. With financial situation in US today and corn popping it seems like the stage might be set up to use food as a weapon again. Thoughts?
TPTB want the world population down to 3 billion maximum by end of century...How's that for long range planning to chill your marrow bone to icy stalagtite...Stalin-tight, more goulag-propriately.
It's still unseasonably cold and wet in the upper Midwest. That has to turn around soon or corn acreage will be planted with soybeans instead.
I'm not a farmer but I've watched this scenario happen several times in the past years.
You are exactly right. We already have. The Asians love soybeans for many reasons, and they have cash.
Chinese crush margins are negative and have been for awhile now. Record crops in Arg. and Braz. will guarantee that US soy exports for the balance of 2011 will be light at best as buyers look to book the huge discounts theat SA beans offer. Domestic soymeal use is down as well due to higher DDG usage. If weather permits good corn planting in the spring (which i doubt), beans will get VERY tight next year.
This can easily be resolved by removing all government subsidies for farm programs of all types...and all fuel subsidies....
Furthermore fuel should not come from food...just ask the over 1 billion people who live on less than $200 per month...
Another fast track to resolving this is to make all legislators live on $200 per month for six months....
..........................................
An accurate inflation guage would also go a long way to resolve....
King Korn--the documentary says it all. when will the govt realize that we need to focus heavily on local foods and cutting transportation costs? and all the gluten free shit lately is increasing corn demand...
www.forecastfortomorrow.com
And why not? FORTY-ONE percent of the 2010-2011 crop used for ethanol. And, of course, that ethanol production subsidized by Uncle Sap! But what the hell, it keeps gasoline prices in check. Just sayin".....
"But what the hell, it keeps gasoline prices in check."
--- LOL That's a good one....
trade off between food and energy usage. Guess which one will win....