By ANDREA JOHNSON, Assistant Editor
March 3, 2007
Corn futures have climbed up over $4/ bushel, but demand for corn remains strong.
“We have to watch the demand side,” said Randy Martinson, Progressive Ag, West Fargo. “Exports have been too strong.”
U.S. corn export sales were running 15-16 percent above USDA projections about a month ago. Sales in late February were running about 8 percent above USDA projections. Martinson pointed out that USDA has also increased their projections for U.S. corn exports a couple of times.
“The key to look at that is we have about a 2 billion bushel estimate for exports,” he said. “If we’re 8 percent ahead of that, we’re going to export an extra 150 million bushels.”
With corn ending stocks currently at 750 million bushels, taking another 150 million bushels for exports leaves a very tight 600 million bushels for ending stocks. Corn ending stocks have only been tighter one marketing year - 1994-95 - when ending stocks were projected at 468 million bushels. Market analysts are suggesting ethanol production requires 3 billion bushels of corn - or almost 22 million acres - in the 2007 U.S. growing season.
“Crude is going to play a very important role on building future ethanol plants,” he said. “If crude stays up above $50/barrel - we’ll see a lot of plants built. If crude slips below $50 - a lot of those plants might get cancelled.”
Martinson believes that the U.S. needs to grow about 12 million more acres of corn - or a total of 90 million corn acres planted with an average yield of 150-155 bushels/acre.
Putting those numbers into a supply/demand chart suggests that raising that size of a crop puts ending stocks at about 700 million bushels - still well below the 1 billion bushel carryout the market likes to see. Almost 25 percent of this year’s corn acres could be planted to corn going into ethanol production.
But a lot of those acres are going to be planted to corn following corn and in areas where corn is not usually raised. USDA shouldn’t be surprised if those acres do not make top yields.
“Weather is going to play a very huge role for corn this year,” Martinson said. “With the upper Midwest being a little dry, that’s going to make us think we’re not going to have those yields. Those yields aren’t going to average 150 bushels/acre - they’re probably going to be closer to 135 bushels/acre. That puts more emphasis on southern Minnesota, Iowa and Illinois to increase their corn acres.”
This winter, Martinson has been a speaker at marketing seminars across the Upper Midwest. Farmers in Indiana told him that conditions were very wet last fall, and not much tillage was completed.
“Those producers are not going to be looking at more corn acres, because logistically they can’t go in there and work their fields in the spring, and get that land in condition to put corn on it,” he said. “They are not looking at increasing corn acres.”
According to the Chicago Board of Trade website, there are no technical signs of a near-term top for the corn market. Corn demand remains very strong, ending stocks are tight, and aggressive fund buying has supported solid gains.
USDA reported that corn export sales for the week ending Feb. 16 were 839,400 metric tonnes (33 million bushels) for the current crop and 90,500 metric tonnes (3.6 million bushels) for the 2007 corn crop.
Traders are building a large weather premium into the corn market ahead of the planting season, the website noted. Prices on Feb. 23 settled with the March 2007 contract at $4.30/bushel; May at $4.42 1/2; July at $4.52; September at $4.35 1/2; December 2007 at $4.21, and December 2008 at $3.93/bushel.
At elevators across the Upper Midwest, cash corn on Feb. 23 ranged from $3.69-$3.95/ bushel according to the Toolshed Ag Information Network found at http://www.smallgrains.org.
At one west central Minnesota elevator regularly followed in this column, cash corn on Feb. 23 was $3.95 with a basis of 48 cents under. Compared with the bid on Feb. 9, the cash price was 24 cents higher, and the basis had widened by 13 cents - indicating that buyers were finding plenty of corn despite great demand.
“Feed demand won’t go down a lot - the poultry growers will slow down a little bit, they will be the first to react because they can react faster,” said Martinson. “Then it’s going to be the pork producers that cut back. They haven’t shown any signs of reluctance of feeding corn. They will take a little hit, because hog prices are pretty good. The cattle producer - it’s going to take about another year and a half to react to higher prices.
“Exports are what we’re going to have to watch. What we need to do is stop exports so we can get that extra 2 billion bushels of corn in for domestic demand. That’s going to be hard to do.”
China, Argentina, Brazil and South Africa are the four countries that export corn beyond the United States. The U.S. supplies two-thirds of the export market for corn.
Martinson thinks the corn industry needs to look at what the ethanol industry is asking them to provide. Does the U.S. want enough corn raised to supply E10 or E15 across the nation? If that’s the case, then enough acres will have to be devoted to corn production to meet that need.
According to Martinson, today’s plants are supplying enough ethanol to run E3 for the entire U.S. - that’s just 3 percent ethanol and 97 percent gas.
Martinson has several messages for producers.
If you are increasing your corn acres, be prepared for the volume at harvest time. Growers have traditionally stored two-thirds of the crop on the farm and their last third at the elevator. As corn acres increase, so does the volume of grain stored at or delivered to the elevators.
“Don’t look for basis to be very good at harvest time, because there’s going to be a lot of bushels coming to the elevator,” said Martinson. “It will probably be after March before that basis improves.”
If he were a producer, Martinson would be looking at forward selling at the elevator - because some corn is going to have to be delivered at harvest anyway. He would leave the basis open to see if there is any sort of weather scare that tightens up basis.
He would also consider options this year.
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