Corn futures traded in a narrow range the past week. However, as the weekend drew near, it appeared that the acreage fight between corn and soybeans once again has energized itself.
While farmers intend to plant more soybeans this season, I look for corn acres to give back nearly 9 million acres of the 15 million acres they gained last year. The U.S. Department of Agriculture left exports in the January report unchanged from December at 2.45 billion bushels, but exports have been running at a fast pace.
In fact, because of China's inability to maintain No. 2 exporter in the world for corn, their customers have few options to turn to. The USDA Outlook meeting last year projected that the United States would account for the world's market share of corn at 72 percent by the year of 2014. However, by the end of 2007, the United State's market share already was at 65 percent.
With China's absence in the export corn market, South Korea has become the second-largest corn buyer for the U.S. with U.S. corn purchases to date at 6.9 million metric tons up from the 4 million metric tons it purchased in 2006. South Korea now has surpassed Mexico for the No. 2 spot.
Rumors that the hog industry is seeing some large hog producers liquidating sows since the first of the year has one wondering if feed usage will remain aggressive. However, with deferred contracts profitable for the October '08 through the February '09 period, I wonder how widespread the liquidation is?
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Then, we look at the outlook for ethanol production to nearly double itself by mid-2009 and demand still appears to be on the uptick. Because there just doesn't seem to be much in the way of alternatives for feed, world demand for corn should remain robust. China's recent bout with the worst winter weather in 50 years should lead to some long term demand for corn. The estimated loss of livestock at 15.8 million head, 14 million fowl and 870,000 pigs all lost either because of bitterly cold weather or disruptions in food and water supplies may slow usage for a moment.
My take is that this is corn usage wasted as a result of the losses and now more will be utilized because of re-population and feeding longer to reach the objectives for food that was now lost if that makes sense. Sort of like the thought process when avian flu was so rampant and most thought it was bearish.
Not for long. I look for corn prices to grow in strength as we go closer to spring. We need all the acres we can get and there doesn't appear to be any price rationing. In fact, on the export side of the equation, how can there be any rationing when corn serves as a food, feed and energy? China already may be into rationing their domestic supplies of wheat, corn, sorghum and rice. China's economy grew 11.7 percent last year. The International Monetary Fund estimates China's growth to still be aggressive albeit down 1.7 percent at 10 percent this year. In an environment like that, wouldn't the price of corn become more inelastic? And with wheat prices doing what they are, doesn't corn appear cheap?
