The U.S. just finished another great showing at the Olympics in London. While there were many great stories, much of the coverage in the first week involved the women’s gymnastics team.
Between Gabby’s smile and McKayla’s scowl, it made for some great tape-delayed television. One of the many attributes of a world-class gymnast is flexibility -- which also has become increasingly important when dealing with the grain markets.
Concern about production has been the main driver of the corn market since mid-June. December corn futures have rallied above $3 in that time frame. After mostly sideways trade during the first part of August, recent crop tours have reignited the concern about yield.
In the August crop report, USDA cut corn yield to 123.4 bushels per acre (bpa). This is a far cry from the initial “trend” yield of 166 bpa. Total production has dropped 4 billion bushels over the last two USDA reports.
As prices move higher, the market focus is shifting from supply to demand. Some kinks in the demand armor already are showing up. Corn export demand has struggled, averaging just 6 million bushels of new sales since May 1. U.S. corn sales have reached USDA’s target, but only after having that target reduced by 150 million bushels since May.
Corn used for ethanol also has faded as margins slipped early in the summer. Current weekly numbers suggest that USDA likely will need to adjust its monthly numbers lower.
The toughest demand segment of all is feed. Liquidation in the cattle industry continues as the combination of high feed costs and poor pasture conditions are too much for some producers to overcome.
Sow slaughter is above five-year average levels, and dairies, especially out West, are struggling to continue milking due to record feed costs.
That being said, the objective of the futures price is to slow demand enough to ensure pipeline stocks. That price could occur tomorrow, or it could be next spring, which is why producers need to stay flexible.
The last six years have shown a wide variety of ending stocks figures. Each year, however, the final number has grown from the lowest point in that year, with many years showing substantial growth.
Will it happen again this year? Could production stabilize/grow and demand continue to suffer? It has happened before, so plan accordingly.
Aaron Curtis is MID-CO COMMODITIES’ commodity risk consultant. His email address is firstname.lastname@example.org