Market Monitor

By Marlin Clark

Low prices, more demand

Two old axioms of the grain trade were being talked about this last week. One is that a big crop keeps getting bigger. The other is that the cure for low prices is low prices.

The market continues to talk about a huge crop, and USDA keeps confirming that, but demand is growing. Several reports from Uncle Sugar kept the chatter going in the pits in Chicago Friday and Monday. Principle interest was in the USDA Crop Production Report and the US and World Supply and Demand Reports.

One long trend of USDA reporting is that in big crop years, USDA reports bigger and bigger crops in successive reports. That would be true for this year, as Friday they reported a two percent increase in the corn crop from what they projected a month ago, to an even 13 billion bushels. If realized, that would be seven percent more corn than we produced last year. They expect an average yield of nearly 162 bpa.

At the same time USDA pointed us toward a record soybeans crop of 3.25 billion bushels, up one percent from last month and ten percent above the 2008 crop year. The average yield would be 42.3 bpa, the third-highest ever. Ohio is projected to tie the state record average yield. This is understandable driving around my area where the crop looks to be by far the best ever. It is not understandable if some anecdotal tales of poor podding are general and not just reports from isolated farms.

Key to the USDA reports if we are trying to make sales decisions is the brightest spot in the reports: USDA says we will have record demand for corn! The pundits from Uncle Sugar expect us to use 13.025 billion bushels of corn this crop year. In other words, we will more than use of the near-record crop. As a result, the carryout that was feared would near the two billion-bushel mark will actually come out 60 million bushels lower than the projection last year at this time. We are now looking at 1.635 billion bushels of carryout, the grain left in storage at the end of the crop year.

The increase in usage is a reflection of the idea that the cure for low prices is low prices. At the lowered prices we are now seeing, demand is increasing.

Key to that demand is usage for ethanol. For all the industry has been suffering and seeing major shake-out of some companies, ethanol usage of corn is projected at 4.2 billion bushels, up from 3.675 last year.

It remains to be seen if these reports are correct. It remains to be seen if the result is more than the firming of corn prices we have seen the last few days, or the start of a step up in prices. Overnight corn is up a nickel, and is at 3.23, 21 cents better than the contract low we put in just a week ago.

Friday USDA projected that demand this year would set a new record.

 

 

 

 

 

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.