Can La Nina Keep Corn Prices Up?
Can December corn futures hold on to gains since August and stay above $3.50? A lot could depend on whether La Nina causes more weather woes in South America, according to analysts.
“The big bet is do we get into La Nina issues,” says Don Roose, president of U.S. Commodities in West Des Moines, Iowa. The planting season is currently underway in South America.
“Right now, $3.50 is a balancing point [with prices ranging from $3.40 to $3.60],” Roose says.
On Monday, December corn closed at $3.54 3/4, down 1/4 cent. The price of corn could come under pressure when U.S. farmers market the corn they’ve already harvested and stored, analysts say.
“The real issue from a producer’s standpoint is that this business is capital intensive, and at some point, the bottom line is that you need money to pay bills, or land rent payments due in March,” Roose says. “Corn is very much like wheat; there is no shortage of it in the US. or in the world. The real issue is the big demand, keeping buying underneath market and producers not willing to sell at these prices.”
Global corn and wheat production are forecast to hit record highs in 2016-17, according to the October report of the International Grains Council. USDA put October U.S. corn production estimates at a near-record 15.1 billion bushels.
Without a weather-induced shortage, American farmers are competing with Argentina, “which has the cheapest corn in the world,” and Black Sea farmers, who grow the cheapest wheat in the world, Roose says. But despite the huge supply, some analysts are optimistic.
“The general trend since late August has been higher,” says Joe Vaclavik of Standard Grain. “I would say, given the increased supply year-over-year, we’re doing pretty well.”
However, another analyst was more cautious, noting that the corn rally has been driven by short covering, not by demand.
“Funds got short in the corn market after July 4th, which drove prices down to contract lows of $3.15 at the end of August,” says DuWayne Bosse of Bolt Marketing in Britton, S.D. “However, during the month of October, funds started liquidating short positions which helped rally the market.”
Now that the U.S. harvest is winding down, and with on-farm storage limitations on some operations, Bosse cautions that corn prices could retreat back below $3.50 or even $3.40 for December corn. Some farmers may have to sell corn very soon to generate cash, he says.
“For those individuals, we are advising to sell now,” he says. “For all other producers, we are recommending storing corn until next spring, or sell next summer by capturing the carry in the market.”