What is in this article?:
- Bulls and bears always in corn market
- High quality corn
- Grain analyst Richard Brock didn’t say the bull market run for corn was over for sure, but his firm’s position on corn was very telling – 100 percent sold in old crop and 70 percent sold on new crop.
High quality corn
Another bearish factor – the high quality of last year’s corn crop could mean fewer bushels consumed for ethanol. To arrive at usage for ethanol, USDA determines gallons of ethanol produced, then uses a conversion rate to determine how many bushels were consumed in the process.
“USDA uses a conversion rate of about 2.7 gallons of ethanol per bushel of corn. But due to the higher quality of last year’s corn crop, that conversion rate is actually about 2.9 gallons per bushels. That means you can produce the same amount of ethanol with 400 million fewer bushels of corn. Most everybody in the industry thinks the corn for ethanol numbers are going to come down because of the quality of the corn crop.”
Brock says only a major crop disaster can hold corn inventories where they are today. “That’s what’s really different this year. You would have to have a major drought throughout two-thirds of the Corn Belt. I have a hard time thinking of a bullish surprise that would keep this market going up. We have a lot of commodity fund buying and other outside influences helping support this market. But the fundamentals look pretty scary.”
Brock says corn could decline toward $4 a bushel on a decent to good crop. “I’m bearish corn. The short-term trend is up, but when it turns, it’s going to leave no survivors. Markets go up slow and they come down fast.”
Brock says producers need to make smart marketing decisions, and fairly soon, too. “If you put off a marketing decision until the crop is planted in the spring, by that time, it may be too late.
“Most grain sales are still emotionally-driven. “Most of us sell too early in a bull market. Why? On the way up, you’re comparing $4 corn to $3 corn. On the way down, you’re comparing to $7, and you’re not compelled to sell. This never changes. Emotionally, it’s difficult. Compare to the averages not the tops or bottoms. Today’s prices for corn and soybeans are way above the average of the last three years. These are high prices we’re seeing right now.”
And remember, “The bigger the bull, the bigger the bear,” Brock said. “This one will not be any different.”