Corn futures suffered a dismal 2013, falling 40% in Chicago on
a front-contract basis – making it the worst annual performance on record.
The slide reflected the marked recovery in US production,
from the drought-hit levels of 2012, when yields hit a 17-year low, to the
record harvest of 2013.
Extra supplies meant buyers were no longer forced into the
competition which drove prices to record highs above $8 a bushel in August 2012.
As a further dent to price hopes, the Environmental
Protection Agency proposed slashing the mandated level of corn-based ethanol
which needs to be blended into US gasoline.
But will the EPA's proposal actually have such a drastic
impact? Will low prices prompt lower corn production ahead and foster some
Leading brokers give their views.
Bank of America
"US corn stocks-to-use ratios are scheduled to double in the
2013-14 harvest season from the prior year to 14.6%, according to the US Department
"True, the corn acreage in 2014 runs below 2013 planting as
acres are shifting away from low-priced corn towards soybeans.
"However, even after accounting for that we find that US
corn ending stocks could be up to nearly 1.9bn bushels in 2013-14, the highest
since 2004-05. This suggests further price weakness ahead.
"Of course, our view does not come without risks. Dry
weather conditions in Argentina could reduce corn acreage planted in favour of
soybeans until the planting season ends in January.
"Also, northern hemisphere plantings of corn in spring,
affecting 2014-15 production, will likely be lower than this year.
"If corn loses an inordinate amount of acreage to soybeans
in the upcoming growing season in both South and North America, then corn
prices could start to find support. However, in our view, even with lost
acreage, stocks will remain high, posing a bearish outlook for prices."
"The negative price performance of corn since the beginning
of 2013 has been far more pronounced than for wheat or soybeans, in view of an
expected harvest increase of 30% in the US and a jump in US corn stocks from a
16-year low to an eight-year high.
Forecasts for quarter
average, front Chicago futures contract
Commerzbank forecasts for corn, 2014
Q1: $4.30 a bushel
Q2: $4.60 a bushel
Q3: $4.80 a bushel
Q4: $4.80 a bushel
"This is likely to reduce the incentive to sow fields with
corn in early 2014. The [5%] decline in US corn acreage predicted in the USDA's
long-term forecast appears realistic from a current perspective.
"Assuming normal weather conditions, the relative availability
of corn will probably decline again compared with wheat in 2014-15, leading to
a narrowing of the price difference between corn and wheat
"We expect corn to recover in absolute terms, even if the
high prices of 2011 and 2012 are likely to remain a long way off.
"It remains unclear what will be the impact of the US
Environmental Protection Agency's proposal to cut back on the mandatory
addition of ethanol to gasoline, because of auto industry fears of damage to
"The EPA is still waiting for government approval. Even if
the proposal is approved, in which case it is estimated that 200-250m fewer
bushels of corn will be needed to produce ethanol, the matter will initially
become the subject of legal disputes."
"While record-high calf-cow margins will incentivise a
gradual rebuilding of the US cattle herd, this remains a slow process, limiting
the growth in 2014-15 feed use.
"Further, the recently leaked draft of the EPA RFS biofuel
targets for 2014 suggests that the agency has dramatically reconsidered its
goals of supporting greater biofuel consumption, pointing to limited growth in
ethanol use in 2014 and 2015 because of the slow adoption of non-mandated
higher ethanol-gasoline blends.
"Finally, we expect stronger corn exports on the likely
decline in South American production, especially for the Brazilian safrinha
"Under our base-case scenario presented in Exhibit 15, we
expect US corn inventories to approach 2.3bn bushels in 2014-15, for a
stocks-to-use ratio of 16.9% up only modestly relative to our 2013-14 forecast
"With crude oil prices fairly stable over the past few
years, corn prices have increasingly reflected US inventory levels and our
forecast for corn prices declining to their lowest levels since 2010 [$3.75 a bushel]
is a simple reflection of our expectation for US corn stocks."
"Record 2013-14 supply will have long-lasting effects,
provided global weather remains 'normal' in 2014-15.
Morgan Stanley forecasts for corn prices
2013-14 average: $4.60 a bushel
2014-15 average: $4.20 a bushel
Forecasts for year average, front Chicago futures contract
"Even with global corn consumption hitting new highs and US
production falling as much as 3% year on year, a 29m-tonne (23%) year-on-year increase
in 2014-15 beginning stocks will make it hard to keep the stocks-to-use ratio
from building again.
"Our base case scenario envisions 2014-15 stocks-to-use at a
five-year-high of 18%, 100 basis points above the 10-year average of 17%.
"With this inventory backdrop, and with soybean prices
competing less for global acreage in 2014-15, there is little that should keep
corn prices from falling further year on year to encourage South American
farmers to consolidate their corn plantings."
"Corn prices are expected to trend slightly lower in 2014 as
a record US harvest combines with rising production from increasing global acreage.
Rabobank forecasts for corn, 2014
Q1: $4.30 a bushel
Q2: $4.20 a bushel
Q3: $4.30 a bushel
Q4: $4.10 a bushelForecasts for quarter average, front Chicago futures contract
"The combination of low interest rates, low commodity prices
and historically strong access to cash will incentivise US farmers to store a
significant portion of the 2013 corn harvest into 2014.
"The expected consequence… is slow downward price erosion as
stocks trickle out.
"Key selling periods are usually triggered in the spring,
when fertilizer is purchased, and land rent payments are made. Other triggers
are likely to be after January 1 2014, when taxes are accrued to 2014 rather
than 2013, and towards the end of July through mid-September, when storage is
cleared for the next harvest.
"Also factored into our base case price outlook is stable
trade demand with China imports totalling 7m-10m tonnes."
University of Illinois
"The large US corn crop in 2013 has resulted in a
substantial decline in prices and will result in an increase in consumption
during the current marketing year.
"Still, inventories will be much larger by year-end. High corn prices have resulted in a 45% increase
in corn production in the rest of the world since 2005, providing prospects for
ongoing competition for US corn. In
addition, the era of rapid growth in ethanol production has passed.
"A small decline in US acreage and a trend yield would
result in a US crop near 14.5bn bushels in 2014, allowing a further build-up of
inventories next year.
"Prices are expected to average in the low- to-mid $4.00-a-bushel
range for the 2013-14 marketing year and in the low $4.00 range in 2014-15."