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Corn prices - can they outperform again in 2012?

Corn was one of the few agricultural commodities to achieve a price rise in 2011, if only by a modest 2.8%.

Prices were boosted by disappointing US production and, at the end of the year, by the risk of weaker-than-expected South American output too in harvests undertaken early in 2012, after poor weather, blamed on La Nina.

Can the grain's resilience continue? Influences will include, besides South American weather, the resilience in demand from the US ethanol industry, which loses tax perks.


"The long-term fundamental data indicate that corn is likely to remain the driving force of grain prices.

Commerzbank Chicago corn price forecasts for 2012

Q1: $6.60 a bushel

Q2: $6.80 a bushel

Q3: $7.10 a bushel

Q4: $7.20 a bushel

Forecasts for average price, near-term contract, during the quarter

Year average: $6.90 a bushel, (was $6.80 a bushel in 2011)

"Biofuels are a dominant force here. However, growth in demand for ethanol production could be modest, mainly because subsidies and trade intervention to promote ethanol production in the US are under debate and are to be phased out. .

"Although demand for animal feed has declined in the US, global demand for corn used as animal feed is high. Additional demand could come from China. Growth in meat consumption remains high in this still rapidly growing nation.

"Overall, this gives a picture which shows higher profitability for corn in 2012. Hence, acreage for corn could be extended.

"Even if the corn acreage is being expanded, corn should remain in relatively short supply given the robust demand. At below 14%, the global stocks-to-use ratio is still low enough to support prices for the foreseeable future."

Goldman Sachs

"Corn supplies are disappointing for the 2011-12 crop year that started on September 1, following both a deficit in the previous crop year and adverse weather conditions this spring and summer in the US.

"Constrained by these low supplies, corn demand needs to be rationed through elevated prices. This demand destruction is still required under our economists' lower 2012 US and world economic growth forecasts.

"As we expect higher gasoline prices, we do not expect ethanol demand destruction through negative blending economics - it would require an $8.00-a-bushel corn price to push the cost of producing ethanol above our forecasted RBOB gasoline prices in January, when the blender tax credit expires."

Morgan Stanley

"Tight US and global fundamentals leave us constructive on corn at least through the beginning of 2012 as larger livestock herds suggest higher US feed demand than is currently modelled by the US Department of Agriculture.

"However, high prices are already eliciting production response from countries like Argentina, Brazil and the Ukraine, reducing the call on US exports, with US production likely to follow in 2012-13.

 "Globally, we see feed consumption increasing modestly by 4% year on year as growing emerging market demand for meat requires a further expansion in the livestock herd. This demand growth will likely be tempered by an increase in wheat feeding elicited by high relative corn prices."

"With forward blending margins positive ex-credit, we do not expect a meaningful drop in [US] domestic ethanol demand. With the RFS mandate growing to 13.2bn gallons (equivalent to about 4.7bn bushels of corn) we see total 2011-12 corn demand from ethanol, down only modestly by about 50m bushels year on year, on lower US ethanol exports."


"We expect corn prices to rally from current spot prices into the second quarter of 2012 before easing in the fourth quarter of 2012 on record production.

Rabobank forecasts for Chicago corn price in 2012

Q1: $6.10 a bushel

Q2: $6.45 a bushel

Q3: $6.30 a bushel

Q4: $6.10 a bushel

Forecasts for average price, near-term contract, during the quarter

"Second and third quarter 2012 corn prices will prove difficult to forecast as the US corn complex moves from a strong deficit to a moderate surplus, with prices highly path-dependent as the market attempts to guide 2012-13 acreage in the US.

"Rabobank forecasts continued reductions to the US Department of Agriculture corn ending stocks projections as use creeps higher on strong ethanol margins and relatively strong exports, while simultaneously, there is also a significant risk of further yield downgrades in the final 2011 [US] crop report due in January 2012.

"Key risks to our forecast include the possibility of negligible La Nina effects and subsequently strong South American exports, as we currently forecast a lower export than the USDA for the continent.

"Rabobank forecasts 2012-13 will see global corn production of 885m tonnes, a 3.4% increase on our 2011-12 forecast and the highest on record."

Standard Chartered

"Corn markets have been battered by plentiful feed wheat and slowing demand from China, as well as investors.

Standard Chartered forecasts for Chicago corn price in 2012

Q1: $7.00 a bushel

Q2: $7.35 a bushel

Q3: $7.00 a bushel

Q4: $6.75 a bushel

Forecasts for average price, near-term contract, during the quarter

Year average: $7.03 a bushel

"Nevertheless, we believe that corn prices will find their feet as concerns about global economic growth fade by the second quarter of2012 and the focus returns to fundamentals, which we believe are extremely supportive.

"We also expect China to remain an opportunistic buyer of US corn given the structural decline in its corn balances.

"We expect corn prices to lead the grains market higher in the first half of 2012 as inventories are drawn down and market sentiment improves."

US Commodities

"The corn market has been supported by the last 18 months by US and world production problems. The world grain supplies are building as production has increased.

US Commodities forecast for Chicago corn price range, 2012

$5.40-6.50 a bushel, assuming neutral fundamentals

Forecast for near-term contract

"It is the South American weather which holds the first potential bullish catalyst.

"[US] ethanol growth in 2012 will go flat, and be similar to 2011.

"The [US] conservation reform probably will lower conservation acres from 32m currently 25m. The additional acres brought back from preventive planting could also add 2m-3m corn acres."

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