Corn inventories are shrinking, but so is demand

Focus on Futures: Corn

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.

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About the Author
Sholom Sanik is an analyst with Friedberg Mercantile Group Ltd. He can be reached at ssanik@friedberg.ca
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