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Be Prepared for a Corn Rally in 2018

by Archer Financial Services | Dec 29, 2017
By Chris Lehner
To learn more about Chris, click here 

There is a good possibility corn can and will rally in 2018. First, the bad news. It won’t happen any time soon. There is just too much old crop to move before any significant rally can happen. And now for the good news. By this time a year from now, corn will be well off its lows.

Unfortunately for some farmers, due to over extended loans and poor marketing management over the past couple of years, before it becomes better, some farmers may not be able to hold on.

Before it rallies, U.S. farmers must deplete and sell on and off farm storage. Stocks must be drawn down! Corn in storage has become an anchor, a heavily weighted anchor on price. When the January 12, 2018 USDA Grain Stocks Report is released, it shouldn’t surprise anyone there will be a record amount of corn stored.

The September 29, 2017 Grain Stocks Report showed U.S. farmers had old crop corn stocks totaling 2.29 billion bushels, up 32 percent from September 1, 2016. From June 2017 through August 2017 farmers moved 2.93 billion bushels, compared with 2.97 billion bushels compared to 2016. In other words, farmers moved less in 2017.

With beginning stocks in 2016 at 1,737 billion bushels and beginning stocks with the latest estimate on the December 2017 WASDE Report at 2,295 billion bushels with ending stocks growing by 142 billion bushels compared to a year ago, one assumption can safely be made. There is a lot more corn to move. Also, the extremely wide basis tells us demand is down; there is too much.

We certainly know export demand is down. As of the December 26th USDA Weekly Grain Inspections report, current marketing year inspections are 9,842,026 metric tonnes. A year ago, for the same period they were 16,410,681 metric tonnes or 6,568,655 metric tonnes less.

Due to the fact at harvest in 2017 in many locations of the Midwest because on farm facilities still had old crop and had to add new crop corn to bins, farmers had to resort to using “outside storage” such as polypropylene bags and even piling it on farms uncovered.

Until corn is moved, any rally that occurs and it will be a speculative based rally, will be short lived.

But there will be increased demand in 2017. 

Below are several tables showing livestock and poultry growth in the U.S. and the world. Worldwide demand for animal protein is growing. As economies improve, demand for meats improve. Of course, it doesn’t hurt that feed is abundant and cheap.

Ethanol distilling is also seeing a worldwide spurt in growth. By 2010 China has mandated usage of E-10 in fuel. Most will come from corn ethanol. Brazil is seeing a move from cane based ethanol to corn based. The U.S. ethanol industry year after year is becoming more efficient. The recent WASDE Report added 50 million bushels for usage.

Corn production as it appears now, in the U.S. for 2017 will likely be lower. At this time, although it will be the year for more corn to be planted as the rotation crop between corn and soybeans, U.S farmers overwhelmingly are saying they will plant more soybeans. Considering costs of production and current prices for 2017/2018 corn and soybeans, the price of soybeans and the price of corn make soybeans the better choice. Whether or not U.S. farmers plant more soybeans than corn, time will tell.

However, the switch in China to plant more soybeans will take place. This past year Chinese farmers planted .5% less corn. There is no price support for corn. Soybeans are supported.

As China uses up it’s oversupply of corn stocks, bringing them down to manageable levels, as it increases corn for ethanol, as it increases livestock production from cattle, this year up 10%, hogs, aqua-farming and poultry demand will increase.

China will be the biggest spark that lights the fire under low priced corn.

Charts are turning

It also appears technical traders have turned the corner. Over the past seven months traders were buying soybeans and selling corn. It is also possible it was spurred on by the need to have farmers plant more soybeans and demand for meal and oil. In any case, as the chart shows, traders have reversed positions and started selling soybeans to corn.

One July 2018 Soybean to 3 July 2018 Corn Spread Chart

Picture1

Chart as of 12:00PM Central time December 28, 2017 from eSignal Interactive, Inc.

Currently, I encourage farmers to sell corn. Corn remains bear spread. Bear spreads are not bullish. Holding grain costs and selling now is a better risk to reward than storing.  Bear spreads as previous reports have shown do not suggest buying call options.

The rally will occur. When is the question. As the Boy Scouts say, “Be Prepared.”

 

Beef and Veal Meat Production by Country in 1000 MT CWE

Rank    Country                       Production (1000 MT CWE)

1          United States                12,448.00       

2          Brazil                           9,700.00         

3          EU-27                          7,900.00         

4          China                           7,110.00         

5          India                            4,300.00         

6          Argentina                     2,900.00         

7          Australia                      2,250.00         

8          Mexico                        1,960.00         

9          Pakistan                       1,800.00         

10        Turkey                         1,600.00         

11        Russian Federation       1,300.00         

12        Canada                          1,170.00        

13        South Africa                1,010.00         

14        Colombia                     745.00

15        New Zealand                638.00

16        Paraguay                      620.00

17        Uruguay                      570.00

18        Japan                           465.00

19        Kazakhstan                  445.00

20        Egypt                           365.00

21        Ukraine                                     360.00           

22        Korea, Republic Of      285.00

23        Belarus                          250.00           

24        Viet Nam                     221.00

25        Chile                            215.00                        

 

Swine Meat Production by Country in 1000 MT CWE

Rank    Country                       Production (1000 MT CWE)

1          China                           54,750.00       

2          EU-27                          23,350.00       

3          United States                12,188.00       

4          Brazil                           3,755.00         

5          Russian Federation       3,000.00         

6          Viet Nam                     2,775.00         

7          Canada                          2,000.00        

8          Philippines                   1,635.00         

9          Mexico                        1,480.00         

10        Korea, Republic Of      1,332.00         

11        Japan                           1,270.00         

12        Taiwan                         815.00

13        Ukraine                                     660.00           

14        Argentina                     585.00

15        Chile                            500.00

16        Australia                      410.00

17        Belarus                          360.00           

18        Colombia                     360.00

19        Serbia                          340.00

20        South Africa                260.00

21        Ecuador                       250.00

22        Norway                                     145.00           

23        Angola                         140.00

24        Cuba                            130.00

25        Hong Kong                  122.00

 

 

Broiler Meat (Poultry) Production by Country in 1000 MT

Rank    Country                       Production (1000 MT)

1          United States                18,970.00       

2          Brazil                           13,550.00       

3          EU-27                          11,880.00       

4          China                           11,000.00       

5          India                            4,600.00         

6          Russian Federation       3,910.00         

7          Mexico                        3,500.00         

8          Argentina                     2,110.00         

9          Thailand                      1,990.00         

10        Turkey                         1,975.00         

11        Malaysia                      1,710.00         

12        Indonesia                     1,700.00         

13        Colombia                     1,600.00         

14        Japan                           1,440.00         

15        South Africa                1,320.00         

16        Philippines                   1,310.00         

17        Canada                          1,240.00        

18        Australia                      1,190.00         

19        Ukraine                                     1,000.00        

20        Korea, Republic Of      880.00

21        Saudi Arabia                765.00

22        Chile                            635.00

23        Viet Nam                     550.00

24        Taiwan,                                     520.00           

25        Belarus                          425.00           

 

United States Beef and Veal Meat Production by Year (1000 MT)

Market Year     Production       Growth Rate

2010                12034              1.25 %

2011                11978              -0.47 %

2012                11845              -1.11 %

2013                11751              -0.79 %

2014                11075              -5.75 %

2015                10817              -2.33 %

2016                11507              6.38 %

2017                12109              5.23 %

2018                12448              2.80 %

 

United States Swine Meat Production by Year

2010                10186              -2.45 %

2011                10331              1.42 %

2012                10554              2.16 %

2013                10525              -0.27 %

2014                10368              -1.49 %

2015                11121              7.26 %

2016                11320              1.79 %

2017                11722              3.55 %

2018                12188              3.98 %

www.indexmundi.com/agriculture/?commodity

Year of Estimate: 2018

Source: United States Department of Agriculture

If you are a speculator or a hedger wanting assistance with an analyst and broker with 30 plus years of solid experience, give me a call 913.787.6804 or send an email to chris.lehner@archerfinancials.com.
    

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