Ag Analysis Report - 5/22/20...Are Corn Prices About To Do Another Head Fake
Corn is one of the world’s most versatile grains. It’s used as animal feed, biofuels and sweeteners. 40% of corn produced is used to make ethanol which is used as a fuel additive. Only a small amount of corn production goes into human consumption like corn oil, corn starch and high fructose corn syrup to sweeten many processed foods and beverages.
Corn is produced on every continent except Antarctica. The U.S. accounts for about 40% of global corn production. The largest corn producing states are Iowa, Nebraska, Illinois, Indiana, and Ohio.
Corn is a highly seasonal commodity with most of the trading action happening in during the summer months. The period between planting and harvesting is one of the most volatile months for corn futures as the Smart Money and Hedgers move price based on expected supply and demand factors.
NOTE: the Hedgers are corn producers or consumers such as factories / large companies where corn is a crucial element of their product or business.
The planting season in 2019 was historically slow due to wet weather several months ago. The storms left millions of acres unseeded and put corn crops that were planted late at a greater risk for damage. For example, in May, a farmer in Indiana said his corn crop was only 6% planted at the time, but this was the case in most of the Midwestern states as many farmers experienced record flooding across the central United States.
This year mother nature has been a bit more friendly as the the U.S. corn planting is over halfway finished, but this year, Farmers have to dealing with the adverse affects of COVID-19.
Gary Schnitkey tells Brownfield he published an analysis for the National Corn Growers Association that shows cash corn prices have declined by 16% on average since March 1st as a result of COVID-19.
“If we look at cash prices since the beginning of the year, from January and February, and then look at it through April 15th, on average across the nation prices fell 60 cents per bushel.”
Schnitkey says corn is taking more hits compared to soybeans and wheat because of lower demand for its two biggest uses- ethanol and livestock feed.
“We would expect to see demand for livestock feed decrease in the future because of the processing plant problems that we are currently facing and then reduced demand for livestock and meat down the road as consumers face a recession type situation.”
Corn Prices have been range bound for years and occasionally gives head fakes in an attempt to breakout. The most recent break out was last month. However, based on wicks circled in year, there are buyers at the $304 level. Thus, I think this will be nothing but another head fake.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.