Corn Price hit substantial highs

Corn

The corn market continues to trade at new high levels for the year.  This is only the 3^rd time in 25 years that the December futures contract high occurred after September 15^th.

Why Do Corn Prices Keep Going Up?

A big rally this fast requires a “perfect storm” of unexpected events happening at the same time.  In this case, carryout predictions among market participants for the 2020 crop have decreased from nearly 3.5 billion bushels in the Spring to under 1.5 billion this month.  A 2 billion-bushel drop in such a short time is unprecedented.

The trade is known for extreme predictions compared to USDA numbers.  However, even the USDA is showing a record decrease this year, from 3.3 billion in May to 1.7 billion earlier this month.  For reference, in 2012 the USDA carryout reduction was only 1 billion bushels from Spring until after harvest.

Why Has Carryout Decreased So Quickly?

The biggest reason is that China could end up importing 4 times more corn this year than normal.  In the last 30 years China hasn’t imported more than 7 million metric tons (280 million bushels) of corn in one year.  This year, many believe China could import more than 30 million metric tons (1.2 billion bushels), and it’s suspected that 50%-66% of it could originate from the US. 

Several other events in the last 60 days have also contributed to a decline in potential carryout:

• Larger than expected yield reductions due to dry weather across      the Midwest

• Decreased 2019 stocks reported nearly a year after the crop was      harvested

• The potential for a La Nina weather event in South America this      January that could reduce Argentina’s yields by 25%

• Typhoons hurting China’s corn crop late in the season

• Ukraine crops were smaller than previously estimated

Basically, China’s increased import demand, combined with several supply restrictions, has significantly changed projected carryout levels from 2 months ago.

Where Could Corn Prices Go?

Some predict corn still has significant upside potential.  Following are some variables that could affect prices:

• China Import Pace - It’s still unclear if China will continue      importing large quantities of corn, and not cancel any purchases in the      future

• South America Weather Unknowns - While the last 5 La Nina      events have impacted Argentina’s corn crop significantly, there is no      guarantee it will happen again this year

• Ethanol Production – There could be profitability challenges      going forward with higher prices that could slow grind

• Covid – If the latest wave slows global economies, there could      be less ethanol and/or meat demand, slowing corn consumption

In the summer of 2019, many in the trade believed corn prices had to go higher, until they didn’t.  Currently, funds are near record long positions, farmers have a lot of corn left to price, and export potentials are strong.  However, if one of these groups changes direction, the corn market could pull back.  If 2 of the 3 were to change directions at once, the results could be similar to last summer when the market pulled back quickly.

Julite Machinery provides you better grain cleaner

5CX-5II magnetic separator can be used to separate grains of a variety of crops (such as wheat, corn, beans and other crops) and agricultural and sideline products, and can also be used to separate commercial grains to achieve the effect of soil removal.