What are the demand prospects for corn? Bob Utterback
advertisement The first cornerstone of demand is feed usage, which is going to increase in my opinion. Grain buyers are attempting to lock up farmers in multiple-year commitments around the $2.50 to $2.60 level. This is a strong sign that end users are worried about future price strength, and they want to get a secure feed supply locked up now.
What’s the implication to the producer? You should think long and hard about giving away your greatest pricing weapon—control of ownership of the crop.
How does the rest of the demand look? While many are excited about Chinese grain imports, which will remain around 2 billion bushels, future growth is going to increasingly move to South America. This means the real growth in demand is going to come from an increase in ethanol production. In my opinion, this is the real wild card. If there was ever an area to misjudge usage, it would be in this sector. We have plants popping up like mushrooms right now. This is why I believe the trade will want a reasonable amount of premium in deferred contracts until they are sure supply has been assured for 2006.
Conclusion? We know there’s corn in the bin, and carryover is an excessive 2.4 billion bushels. We know demand is growing, and very shortly, we are going to need an 11 billion bushel production. The trade is going to keep December 2006 corn prices firm (above $2.35) until it knows the planted acres and yield potential. This implies the downside risk of December corn is limited until we are well into May.
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