For commodity prices it’s always about supply and demand and the demand side is what’s likely preventing a stronger corn price rally. That’s just the bottom line of it all says Todd Hubbs of Illinois Extension.
“Because, when you look at USDA’s set of projections, to me they are on the high end of possibilities for consumption during 2020/21 based on the economic conditions we are in right now,” says Hubbs, an agricultural economist at the University of Illinois.
He adds, if corn consumption is to be as large as USDA projects, it will require very low prices.
“When you sit down and look at use in total, they (USDA) are projecting 14.775 billion bushels of use. That’s up over a billion bushels from the present marketing year. So, to create this kind of demand, it will require really strong feed usage. This is feasible. Last Friday’s Cattle on Feed report showed a lot of placements, and there are a lot of hogs. Will that continue through 2021? It is a big question given where prices have been over the last couple of months.”
USDA also has pegged corn exports above two billion bushels. Again, feasible says Hubbs, but it will require low prices to entice buyers away from the competition in South America. And then there is ethanol and the pandemic.
“Corn use for ethanol is always a worry for me these days, and they have it at 5.2 billion bushels. We are sitting almost 10 percent down on ethanol production from where it would typically be at this time of year and that looks like it is going to continue for a while. Gasoline demand has flattened out and we’ve seen ethanol exports below last year’s pace, due to coronavirus.”
USDA’s demand projection just feels like it is way out on the high end of the range says Hubbs, and to get there the price of corn will need to stay low.
Source: NAFB News Service