Grain markets are changing
By Jennifer Carrico
Grain markets for 2014 are not the same as they have been in the past few years, but the shift does not completely change the marketing picture, according to DTN Senior Analyst Darin Newsom.
Newsom told an audience at the 2014 Commodity Classic in San Antonio, Texas, that all the changes that have been seen in the grain markets go back to 2006 when ethanol became a factor in raising grain.
“When investors could double their investment in commodities it really led to a demand market and caused a long-term price change,” he said.
The demand market for corn looked like it was over in 2013. He was concerned that if one commodity would fall, it would also take the other grains and livestock with it.
“We had a dramatic situation in 2013. In 2010 through 2012, we had problems with Mother Nature and the U.S. corn production was whittled back,” Newsom said. “With the increase in demand, but a decrease in supply because of the weather, we saw other countries start to grow more corn and the market started to suffer.”
Besides the increase of corn production worldwide, the market was also affected by a drawback of ethanol production and a drawback of feed demand of grains.
“Feed demand should grow again and actually the demand for corn domestically for the next two years is estimated to be at record levels and continue to grow,” Newsom said. “Now we are going to have to make sure we can meet these demands.”
Feed demand is expected to be considerably more this year due to the increase in the cattle inventory. Export levels are also expected to grow from what was lost the past few years due to weather.
Newsom said the other reason for a slower increase in corn exports is the record demand for soybean exports. More than 1.51 billion bushels of soybeans are expected to be exported in 2014 and exports are already way ahead of normal for early in the year.
Planting expectations for 2014 are 92 million acres of corn. In 2013 there was an early projection that 100 million acres of corn could be planted, when 98 million acres were expected, and the final numbers tallied in at 97.6 million acres. However, 3 million to 6 million acres were never planted and another 2 million to 3 million acres are still not accounted for from 2013.
“I guess theoretically it is possible that we could have planted 100 million acres in 2013, but I don’t think it actually happened,” Newsom said.
Newsom doesn’t think there will be that drastic of a cutback on planted corn acres, but he said it won’t be as easy to tell until planting is completed because planting season will likely be later due to a wet spring.
“Once we see what the demand for U.S. supplies are, the market can follow. I don’t think the fundamentals will support $5 to $6 corn, but more likely it will be around $3,” he said.
Pressure is currently on the wheat market because of the large Canadian wheat crop. Newsom said record levels of other commodities will likely come back down and level off.
“We may start to open the door to changes by 2015,” he said. “If acres are held back and we see 80 million acres of soybeans, then it will put some pressure back on the markets.”
Newsom said the good times in the grain markets aren’t necessarily over, but instead they have to move forward with caution.
“We can’t just go back to planting more and more corn. Now we have to be aware of what is happening in the market and around the world. The investment money is not going to come back in to the commodities at this point,” Newsom said.
Jennifer Carrico can be reached by phone at 515-833-2120 or by email at firstname.lastname@example.org.