grain silos in background of green corn field stevanovicigor/iStock/Thinkstock

Grain prices to remain flat as U.S. inventory excess is consumed

Declining world production may provide some support.

Bumper corn yields and excess supply will continue to pressure corn prices lower during the first half of 2018, according to Texas A&M AgriLife Extension Service economist Dr. Jason Johnson.

Johnson, an AgriLife Extension economist in Stephenville, Texas, told attendees at the Blackland Income Growth Conference in Waco, Texas, that the three-month weather outlook for grain crops calls for above-normal temperatures for January and February and a continuation of the current La Nina pattern typically associated with dry winters in Texas.

“Some combination of forces that deplete the supply overhang will be needed to drive prices higher,” Johnson said. “The good news is we do see a bit of a world production drop-off.”

The U.S., China, Brazil and the European Union account for more than 70% of the corn produced worldwide.

“Exports play a big role,” he said. “Argentina and Brazil now export more corn than the U.S.”

The North American Free Trade Agreement is one of the overlying factors, Johnson noted.

“That has added to inventories and put on some of the price pressure,” he said. “We have the highest number of grain-consuming animal units in our history, and we are exporting a lot of corn. For the current marketing year, Mexico has accounted for 36% of U.S. corn exports, while Japan accounts for 16%.”

Johnson said in order for corn prices to start making a rally, “we have to see some expectations that reduce the projected ending stocks-to-use carryover to support an upward trend.”

Currently, there are 70 days of corn use on hand and 104 days of soybean use. Johnson said the marketing-year average corn price during the biofuel era ranged from about $3.20 to $6.89/bu. Prices now are close to the bottom of that range.

“Our ending stocks-to-use ratio is 17.2%, with projections for 2018-19 pegged at 16.8%, so for our prices to start going up again, we need to see expectations for that carryover to come down,” Johnson said. “Typically, we get some seasonal price rally in June and July. That’s when you need to seriously consider marketing alternatives to price at least a portion of your expected crop production for the year.”

Johnson advised corn growers to spread the marketing of their crop over several periods throughout the year to take advantage of favorable swings in the market.

“That way, you are not selling all at one time. Avoid selling everything at harvest, when prices are typically among the lowest for the entire year, and take advantage of some opportunities to capture some gain in the market throughout the year,” Johnson said.

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