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Corn prices - can they stay high in 2013?
By Agrimoney.com - Published 31/12/2012

Corn futures are set to show gains in 2012, of some 7%, despite a substantial decline from the record $8.43 a bushel in Chicago in August.

The rise to the high was fuelled by disappointment over the US crop, the world's biggest for which yields were depressed to a 17-year low by drought.

But there looks like being a large response to the elevated prices, with some analysts talking of US sowings close to 100m acres next year, which would be the highest since the 1930s.

Can corn prices hold up against this backdrop?

Commerzbank

"Although the prospect of another good crop in Brazil after a record in spring 2012 and a record-high crop in Argentina next spring promise some easing on the market, global supply will remain tight for the time being.

Commerzbank corn price forecasts

Q1 2013: $7.30 a bushel

Q2 2013: $7.10 a bushel

Q3 2013: $6.60 a bushel

Q4 2013: $6.20 a bushel

2013 average: $6.80 a bushel

Forecast for quarter-average price, Chicago front futures contract

"Heavy rainfall in Argentina has hindered the planting process there, already causing the euphoria to drop.

"The market shortage should keep prices at a high level. That said, prices should remain quite a long way off their record level that was supported by the panic and the expectation of a poor harvest of rival product soybeans, which was initially expected to be much worse than it actually turned out to be.

"The high price level should mean a large corn acreage again in 2013, albeit it under tough competition from soybeans.

"Assuming a return to 'normal' yields, the situation on the corn market should ease in the course of 2013, and prices should fall moderately to $6.20 a bushel in the fourth quarter 2013."

Darrel Good, Department of Agricultural and Consumer Economics, University of Illinois

The small corn crop and high prices in 2012 will result in a substantial decline in consumption and small inventories by the end of the current marketing year.

"Smaller crops in other parts of the world and continued strong demand will also reduce foreign inventories.

"Argentine corn production is expected to rebound in 2013. Stable US acreage and a return to a trend yield would result in a US crop in 2013 in excess of 14bn bushels, allowing a substantial rebuilding of inventories.

"Prices are expected to decline from the record high levels of 2012 as production rebounds. An average farm price above $7 a bushel is expected for the 2012-13 marketing year, but the average for the 2013-14 marketing year could be in the $4.75-5.50 range."

Goldman Sachs

"During past weather shocks, corn prices reached their peak in the fall, around the lowest production estimate.

Goldman Sachs corn price forecasts

Three-month horizon: $8.25 a bushel

Six-month horizon: $8.25 a bushel

12-month horizon: $6.50 a bushel

Forecasts: Chicago front futures contract

"We believe that 2012-13 will prove different as exports and ethanol corn use will likely ramp up in the first half of 2013: old-crop Brazil exports have stopped, leaving the US as the only exporter in coming months, while the spring ramp-up in US gasoline demand will require higher ethanol production.

"For 2013-14, US corn production has the potential to rebound strongly under average weather conditions on the combination of higher acreage and a return to trend yields. We see significant risks given the persistence of the US drought, and we set our 2013-14 US corn yield at 158 bushels per acre, with risks as skewed to the downside.

"This is still sufficient to bring Chicago corn prices sharply lower in the second half of 2013, and potentially near $5.00 a bushel, as the recovery in demand will lag the production rebound.

"Livestock herd expansion is a slow process, while rising ethanol imports from Brazil and the slow adoption of E15 will keep US corn ethanol production below its 2011-12 level."

Morgan Stanley

"With US corn production falling 1.6bn bushels year on year, prices need to rise materially in early 2013 to incentivise further demand rationing from the US livestock sector. The decline in production still requires US demand to fall by 10.5% year on year simply to keep stocks above historical minimums.

Morgan Stanley corn price forecasts

2012-13: $7.85 a bushel

2013-14: $5.90 a bushel

Forecast for season-average price, Chicago front futures contract

"Risks to South American 2012-13 production also heighten the near-term bullish risk.

"In 2013-14, improving supply should pressure prices weather permitting. Trend yields and a lower steady-state level of feed demand should leave the US and global balances the most comfortable in years.

"The US drought is still a worry into 2013. Soil moisture levels remain alarmingly low in the western Corn Belt. If the dryness persists through planting, it would leave the 2013 crop vulnerable to any summer dryness and heat."

Rabobank

"The beginning of 2013 is expected to see prices rise from current levels to encourage further demand rationing in the US.

Rabobank corn price forecasts

Q1 2013: $7.90 a bushel

Q2 2013: $7.00 a bushel

Q3 2013: $6.25 a bushel

Q4 2013: $6.00 a bushel

Forecast for quarter-average price, Chicago front futures contract

"We believe the US Department of Agriculture Grain Stocks report in January will confirm further reductions in 2012-13 production and tighter stocks levels versus current USDA estimates.

"The transition from the second quarter of the year to the third quarter will likely be the most volatile period of 2013 as the US corn complex transitions from a strong deficit to a moderate surplus.

"We expect the global corn stocks-to-use ratio improve 3.5 points year on year to 15.9% in 2013-14, which is still substantially below the 10-year average of 17.2%.

"Strengthening global consumption of corn is forecast to prevent stocks-to-use levels from recovering to long-run average levels. We expect the largest ever year-on-year increase in world corn demand in 2013-14, 43m tonnes above the previous record use in 2011-12.

Gary Schnitkey, Department of Agricultural and Consumer Economics, University of Illinois

"Market-year-average prices are national, cash price farmers receive for corn from the months of September to the following August.

"These market-year-average prices are compared to average settlement prices for the December Chicago futures contracts in the December prior to expiration. These futures prices serve as a way of predicting the market-year-average prices.

"Chicago futures prices suggest that market-year-average corn prices for 2013 will be near $6.00 per bushel.

"Obviously, prices could vary from $6.00. Historical price changes suggest there is an 8% chance of the market-year-average price being below $4.50 per bushel and a 19% chance of market-year-average price being below $5.00 per bushel."

Societe Generale

"Demand destruction remains the key theme.

SocGen corn price forecasts

Q1 2013: $7.38 a bushel

Q2 2013: $7.05 a bushel

Q3 2013: $6.74 a bushel

Q4 2013: $6.57 a bushel

2013 average: $6.93 a bushel

Forecast for quarter-average price, Chicago front futures contract

"We see corn demand and prices pressured on reduced usage for ethanol, further reductions in the US livestock and poultry sectors, and less exports.

"However, prices are vulnerable to adequate South American production. If production there disappoints, prices will likely see upside risks to our current forecasts.

"One key risk becoming apparent to the market is seed availability for the next US planting season, following this year's drought-induced production losses.

"At present, comments from earnings calls of the major seed companies have yielded generally optimistic views regarding seed availability. However, we highlight this as a risk to our current price forecasts."

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