Corn demand has been very weak. The most striking evidence can be found in the U.S. export market. Even as prices have fallen from mid-August right through the harvest period, nobody has been buying.
The USDA finally stopped slashing its forecast for 2012-13 U.S. exports in the November crop report, maintaining the 29.2-million-tonne October forecast, which would amount to only 74% of 2011-12 final sales of 39.2 million tonnes. A glance at the progress of sales, however, shows that even this estimate – for the moment anyway – seems wildly optimistic.
Since the Sept. 1 start of the 2012-13 marketing year, weekly commitments have averaged an absolutely anemic 135,000 tonnes, compared with 885,000 tonnes last year during the same period. Commitments to-date, which include outstanding unshipped sales from the previous marketing year, stand at 11.2 million tonnes, only 52% of the 21.5 million tonnes registered last year at this juncture of the season.
The situation, though, is not quite as bleak as it appears. Eastern European and South American origins have been available at discounts to U.S. prices. With prices trading at record levels, foreign buyers have been shopping for bargains, meeting their needs outside the U.S.
The aggressive buying from U.S. competitors, however, has its limitations. The discounts have disappeared and, more significantly – particularly in Brazil and Argentina – supplies available for export have been run down. Eventually we should start to see the return of traditional U.S. customers.
There are other factors that will ultimately spur demand for U.S. corn. Since 2008-09, EU corn imports have averaged about 3.3 million tonnes per annum. However, the estimates for 2012-13 EU corn crops have fallen precipitously over the past few months – from a high of 65 million tonnes in the summer, to the current estimate of 54.65 million tonnes. The USDA has tried to keep pace, with commensurate increases in the amount the member countries will have to import. The November crop report raised the import estimate by 1.5 million tonnes from the October estimate, to 6.5 million tonnes. But that estimate is seriously outdated. Several analysts have raised their forecasts for EU to imports to as high as 12 million tonnes.
Another issue is that until a few months ago there was an abundance of feed wheat available as a substitute for corn. Chart 1 shows that from mid-2011 through mid-2012, wheat prices had collapsed vis-à-vis their traditional relationship with corn prices, making wheat an attractive alternative. But because of the disastrous FSU wheat crop this past season, the market for feed wheat has tightened, and the wheat/corn spread has moved back into its normal historical range. Any pent-up demand for carbohydrate feed should drift back to corn.
The estimate for global ending stocks is 117.99 million tonnes, the lowest carryout since the 1973-74 season. With the opportunity to lock in record prices for the coming spring’s plantings, there is little doubt that U.S. farmers will attempt to plant a lot of corn. With good weather, they should harvest a record crop. But it’s a race against time. That crop will be harvested next autumn, and even South American crops will not be available for several months. In the meantime, the drought compromised U.S. crop will suffice, but only if the forecasts for much slower demand from the export, domestic feed, and ethanol markets are accurate.
The market tested the recent lows (Chart 2), but our protective $6.95-per-bushel sell stop recommended on October 14 was not breached. Roll long December corn to March and maintain the same stop.
