Grain markets sink as cattle rise

Farm Forum

Corn prices were on a rocket with ethanol boosters for several years, but that’s in the past now, said Dan Basse, AgResource Company, in remarks to cattle feeders last month in Omaha and in Garden City, Kan.

“Last year I said you just have to try and hold on for another year while grain farmers maximize revenue,” the Chicago-based market analyst said at the eighth annual Feeding Quality Forum. “Now the picture is reversed. “We’re just trying to keep corn farmers in business as livestock producers have their turn.”

Big changes are rocking the agricultural markets. Why?

“You have been fighting ethanol for corn these past six or seven years, but the biofuel rush is over, and the aftereffects have reshaped the market,” Basse said. With no plants under construction, ethanol demand will be “flat-lining” into 2022.

An ethanol boom (see chart) that started a decade ago needed 5 to 9 million more acres for corn each year and drove world prices higher, but it kept more and more U.S. corn home while competitors led by Brazil reacted to fill those international orders.

Industrial demand is stable at 4.6 to 5 million bushels of corn each year in the U.S., but production has adjusted now. Normal weather will only build ending stocks since Brazil, Argentina, the Ukraine and the rest of the world have stepped up to supply global needs, Basse said.

The U.S. share of world corn trade has fallen to a record low 28% compared to 65% in 1979. Last year, for the first time, U.S. soybean exports exceeded corn. Even that stands to fade this year with record increases in South American soybean yields, he said, noting U.S. prices could be less than $10 per bushel early next year, and down from there as more South American acres switch away from corn.

“Investor money has been leaving the grain market and going into stocks on Wall Street,” Basse added. “There’s no export story in grains; there’s no biofuels story; there’s no consumption story.”

Showing a corn price chart dating to 1866, he said the fall from last year’s peak could reach $4 per bushel this fall and should range from $3.25 to $6 for the next 10 years.

“I can’t really tell you how important that is for you in the feeding business, to have ending stocks of corn built up,” the economist said. “The new stocks/use ratio means a short crop in the future won’t bring worries about $8 corn – that tremendously reduces your risk.”

One cure for falling prices is to take land out of production, but without political intervention, U.S. farmers react to lower prices by planting more as long as they can, Basse noted.

China won’t buy much of the cheaper corn because it must keep its own 570 million farmers on course to produce, and