Linked In
News In
Linked In

You are viewing your 1 complimentary article.

Register now to receive full access.

Already registered?

Login | Join us now

Corn price rout is near its end - so new market model shows

Twitter Linkedin eCard

Some good news for US farmers on corn prices, at last.

Values may fall further – but not by that much, even if the US does produce a huge harvest this year, according to analysis by Macquarie.

Some lowball figures have been going around this week for Chicago futures, as low as $3.50 a bushel.

That figure is "definitely out there", Jerry Gidel, chief feed grains analyst at Chicago broker Rice Dairy, said.

"Everyone seems in a race to the bottom," in price terms.

'No longer works'

However, a pricing model by Macquarie suggests that the floor may be significantly closer.

The bank has drawn up the model after finding that the traditional reliance on the stocks-to-use ratio – which offers a guide to the extent that buyers will need to pay up for supplies – "no longer seems to work".

"There is a link, but there is not as good a correlation as there used to be," Macquarie analyst Chris Gadd told

Plugging historic pricing levels, related to stocks-to-use figures, suggests that soybeans should be heading for $6 a bushel, and corn to about $2 a bushel.

Production costs

The breakdown in the relationship is down to a step up in agricultural costs.

As farmers will know, while higher crop prices in recent years have swollen their revenues, they have faced pressure from higher costs of many inputs (with the notable exception of fertilizers).

"Cost of production has changed, so modelling needs to factor in increased land valuations in the US, and Brazil's transportation charges," Mr Gadd said.

And plugging an estimate for cost of production into the mix shows corn prices finding support well above anything beginning with a $2.

Macquarie curve

The result, based on a farmer renting land in Illinois, and on data since 1990, shows a kind of sideways s-shaped curve, where a stocks-to-use ratio below 10% sees prices trade 20-100% above the cost of production.

When the stocks to use ratio is at 10-15%, prices trade, at best, with a 20% premium to production costs.

The current situation, with stocks-to-use over 15%, implies prices can stay at the cost of production, but with a potential fall of 20% below.

With Macquarie estimating the cost of production at $4.12 a bushel, "we forecast the cash price in Illinois should trade about $3.75 a bushel", Mr Gadd said.

"In reality there is maybe not that much more downside from here."


Twitter Linkedin eCard
Related Stories

Evening markets: Ags drop as funds swap sides, befriending bears

The Bcom ag subindex closes back below its hard-won 200-day, amid talk of fund selling in both grains and soft commodities. Soybeans escape

Adecoagro downplays losses to Argentine drought - even as exchange slashes crop forecasts

Adecoagro sees only limited damage to its corn and soybeans from drought - which the Rosario exchange sees as having slashed Argentina’s overall crop prospects

Weekly grains and oilseed market view from Europe, March 16

Confused UK wheat market messages... importance of Black Sea weather... as EU set for another cold turn... slow EU rapeseed imports...

Morning markets: Soybean futures extend gains, but cotton 'ignores' bullish signals

Cotton futures ease despite what would appear bullish data, including on US exprots. Still, corn futures ease despite upbeat US export statistics too
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© 2017 and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of AgriBriefing Ltd
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069