URBANA – Corn prices have recently moved in three distinct patterns. These include the patterns for new-crop futures, old-crop futures, and old-crop cash prices, according to University of Illinois agricultural economist Darrel Good.
December 2012 futures reached a high of $6.735 on Aug. 31, 2011, and declined erratically to the current low of $5.15. The decline since the third week of April totaled about 50 cents.
“Continued weakness reflects a combination of large crop expectations and demand concerns,” Good said. “The early planting season along with non-threatening weather conditions to date have created expectations for an above-trend yield in 2012. In combination with large acreage, yield expectations point to a crop well above 14 billion bushels.”
New-crop demand concerns are in two categories, Good explained.
“First, the delayed and likely slow implementation of 15 percent ethanol blends in the U.S. fuel supply point to stagnating corn consumption in that category next year as the E10 blend wall rapidly approaches,” he said.
“Second, the European debt crisis, a slower pace of economic growth in China, and the slow pace of job creation in the United States dampen commodity demand expectations for the year ahead.
“The one bright spot may be a larger export market for U.S. corn as the USDA has recently announced large sales to both China and other unknown destinations. Conditions currently point to a substantial buildup of U.S. corn inventories next year and increasing expectations that prices will return to the lower averages experienced in the 2007-08 through 2009-10 marketing years. Average prices received by farmers in that three-year period averaged just under $4.00.”
Old-crop July futures reached a high of $7.95 on Aug.30, 2011, declined to about $5.92 on April 18, 2012, and are currently trading near $6.15. The premium of July futures over December futures is nearly $1.00 and has increased about 36 cents over the past two weeks.
Good said the weakness in July futures reflects increasing expectations that old crop inventories, while tight, will be sufficient until new crop supplies are available. Old-crop export sales have been brisk, but the pace of shipments remains well below the pace needed to reach the USDA projection of 1.7 billion bushels for the year. The pace of ethanol production suggests that corn use in that category will not exceed the USDA projection of 5 billion bushels.