Can corn prices pull out of their decline in 2018?
Not since 2012 have Chicago futures recorded an increase, although last year the decline in prices was only marginal, at 0.4%.
Indeed, with world corn output expected to fall short of consumption in 2017-18, could a drop in inventories (albeit most notable in China) bring better times for bulls this year?
Or might US yields again confound sceptics to weigh on prices again?
Leading commentators give their views.
Mike McGlone - Bloomberg Intelligence senior commodity strategist
“Global corn demand has never been so robust at such depressed corn prices
“Stars are aligning for US ethanol export growth, supporting corn prices.
“Clean-burning and low-cost US ethanol is increasingly attractive to virtually every country looking to reduce vehicle emissions, notably China, with additional support from the weaker dollar (down 6% in 2017, for the worst year since 2009).
“Corn used for ethanol is set to surpass feed and residual needs in 2018.
“US planted corn acres and production are unlikely to increase until prices improve.
“For the first time, acres of soybean are likely to exceed those of corn in 2018, reducing total output. Corn production declined despite record yield per acre in 2017, indicating a lack of incentive from low prices.”
“Our base case [average 2018 price of $3.65 a bushel for spot Chicago futures] is more neutral the curve in calendar 2018, albeit bearish calendar 2019, given the high carry in the corn market
“Since 2000, both Chicago corn and wheat prices have traded at a floor about 70% above cost of production, adjusted for yields.
“To the extent the historical relationship between Chicago trading and farmer cost of production holds, then we anticipate fairly modest cost support in the next year (assuming trend yields) at $3.15-3.20 a bushel for corn.
“This relationship has been fairly consistent and reliable for grains before, during and after the commodities supercycle. And with spot trading for corn and wheat only marginally above these levels during peak harvest, downside could be limited from here.
“US corn balances since 2013-14 are trending to the loosest environment in about a quarter century.
“Absent a major weather event during the northern hemisphere planting cycle, we think it is unlikely corn prices can sustain a rally.”
“Global production in 2017-18 looks set to fall well short of the previous year given that the US crop was down year-on-year, as were the crops in Mexico and Ukraine – where yields were diminished first by dry conditions and then by excessive rainfall at harvest time – not to mention… initial forecasts for Brazil that are roughly 5% lower.
“That said… total stocks in the leading exporter countries will rise – the US being responsible – while the global stocks-to-use ratio remains at a level that hardly gives cause for concern.
“Nonetheless, the price is likely to rise slightly if the global inventory reduction continues throughout the season on the back of high demand.
“We forecast a US corn price of $3.70 per bushel in the October-to-December quarter of 2018.”
Mike Zuzolo, Global Commodity Analytics
"I recommend setting a target of $800-900 per acre of gross revenue for 2018 cash corn sales.
“Is this too aggressive? Not… given the world stocks-to-use ratio remains at a three-year low of about 19%, and not if investor sentiment finally shifts away from equities and toward commodities.
“I am expecting a return to increased inflation expectations to start to drive commodity investment demand in the upcoming year.
“Funds are heavily exposed on the short side coming into 2018. And probably even more important in terms of supporting the analysis for corn in particular is the chart of net commercial holdings [as revealed in weekly Commodity Futures Trading Commission data].
“It has an impressive track‐record of indicating major highs and lows in the corn futures. When one makes a high, the other makes a low, and vice versa.
“We have just seen the commercial holdings net long position peak in November.”
“South American weather will remain critical for prices over the remainder of the 17-18 crop year.
“However, beyond this period we remain focused on production costs. Apart from the string of good weather conditions over the last four years, the key reason why the much lower corn prices have not induced rapid production declines (through lower acreage) is that costs have also rapidly declined over this period.
“We now see this story as having largely played out. Accordingly, under normal weather conditions we forecast corn prices remaining flat at $3.50-a-bushel for 3, 6 and 12 months.”
“Corn prices in 2018-19 are expected to improve from recent lows, as global stocks decline for the second consecutive year.
“In our base case, Chicago corn prices are likely to spend considerably more time above $4.00 a bushel than during the 2016-17 and 2017-18 seasons, as global stocks for 2018-19 fall 18%, towards 168m tonnes.
“US 2018-19 corn planted area is expected to decline by 0.5m acres year on year to 89.9m acres, as spring wheat acres compete strongly amid recent price relatives.
“While still very early to be looking at 2018-19 South American corn figures, we forecast a 200,000-hectare year-on-year decrease for Argentine corn harvested area, as reductions to soybean export taxes incentivise additional soybean area over corn.
“Conversely, we forecast Brazilian harvested area to increase 400,000 hectares year on year to 17.4m hectares.
“Global 2018-19 corn balance sheets under our base case scenario would be delicately poised, and a major disruption to production in any of the major exporting regions could be the catalyst for a significant rally in prices.”