Corn May Return to $7 Amid Ethanol, China Demand
Thursday, October 27th, 2011
Corn prices may return to the $7 a bushel area amid strong demand from U.S. ethanol producers and prospects China may need more of the grain to feed its livestock herds, agribusiness analyst Heather Jones said.
Since sinking to a seven-month low at the end of last September, December corn futures in Chicago have rallied 10 percent, partly because of recent, large purchases by China. In light of a tight global supply outlook, corn probably won't trade much below $6 and potentially could reach $7 over the near-term, according to Jones, who's with BB&T Capital Markets.
For U.S. livestock producers grappling with high feed costs, the prospect corn will remain expensive makes it important to maintain robust export beef, dairy and pork markets, Jones said.
"Longer-term, fundamentals point to a new price plateau" for corn, albeit likely below current levels, Jones wrote in an Oct. 24 report. "As a result, it is crucial that protein export demand remain strong and that producers maintain tight supply levels."
In trading Oct. 25, December corn futures on CME Group fell 1/4 cent to $6.50 3/4 a bushel. On Sept. 30, December futures settled at $5.92 1/2, the lowest since mid-March. December futures haven't traded above $7 since Sept. 20.
China's corn imports during the 2011-12 marketing year are expected to double from the previous year, to 2 million metric tons, even with the country's harvest increasing nearly 3 percent, to 182 million metric tons, according to U.S. Department of Agriculture forecasts.
But some observers, including the U.S. Grains Council, a Washington, D.C., trade association, estimate China's crop below the USDA figure. The potential China may have to step up corn imports, combined with strong demand from top importers such as Mexico and Japan, is sure to pressure U.S. stockpiles already on track to hit a 16-year low in 2012.
"Supportive fundamentals are broad-based and include export demand, but as always, the outlook is somewhat murky," Jones said. After China purchased U.S. corn "in a meaningful way" in recent weeks, the country's demand profile for the remainder of the year "is a key wild card and projections of its import demand vary widely," she said.
A mitigating factor for China's corn needs, Jones added, is the country's "vast" stockpiles of wheat, "which it may use to fill some feed demand," she said.
Strong U.S. beef and pork exports helped push cattle and hog prices to all-time highs earlier this year, offsetting to some extent the impact of soaring feed costs. In pork, sharply higher Chinese shipments are a major factor in the industry's robust exports, which are on pace to hit a record in 2011.
During the first eight months of the year, pork exports totaled 3.27 billion pounds, up 18 percent from the same period in 2010, according to USDA data. China bought 266.5 million pounds during that period, a nearly six-fold increase over a year earlier.
U.S. pork exports by value this year may exceed $5 billion for the first time and top the current record of nearly $4.9 billion in 2008, according to University of Missouri economist Ron Plain.
Beef exports during the first eight months of the year totaled 1.87 billion pounds, up 27 percent from the same period in 2010, according to USDA data.