The Corn Conundrum

Last Thursday the USDA released their latest Supply & Demand report showing corn ending stocks down 114M bushels to 619M. This is largely due to the September 1^st quarterly grain stocks figures being lower than expected & reducing the beginning stocks by 193M.  The corn markets responded by rallying to finish up over 35 cents in the nearby contracts and appeared poised to reassert themselves ‘north' of $8.00. Fast-forward to today and while December '12 corn (ZC Z2) contract finished the day up 15 ¼ cents to $7.60 ¾ , corn prices remain nearly $1.00 off their highs basically in the same place they were heading into the report. Why?


A big reason has been the extremely poor pace of exports as US corn has continually shown its lack of ability to be competitive on the global markets. Twice this month, we have heard reports of cheaper South American corn being shipped into the Carolinas rather than originating corn domestically. Japan, a regular buyer of US corn, instead turned to the Ukraine to fill its tender for 250 TMT corn for November and December shipment. Simply put, US corn is just overpriced at these levels relative to the alternatives and the funds have been willing sellers on rallies as their appetite for speculative buying wanes.

Additionally, the high corn prices have put ethanol producers in a bind. Just a few weeks ago we heard reports of yet another 115 MGPY ethanol plant in Fairmont, Minnesota that was shutting down until the price of corn comes down. With cash basis remaining firm as operations attempt to originate grain, spot-market producers of ethanol remain solidly in the red. In each of the last two weeks, the difference between the price of corn and the value of the co-products (ethanol and DDGS) in Iowa was just $1.34 and reflects a negative margin of 52 cents per bushel. Last year at this time, when the grind was in full swing, margins for ethanol producers were solidly in the black at a robust $2.88. (more)