Corn futures prices fell almost 2% on Friday last week to reach $3.85 per bushel, the first time the grain has been below $4 per bushel for almost four years. Corn prices have fallen almost 30% since late April on expectations of favourable prospects for global corn supplies. The latest decline in prices was caused by reports of almost perfect growing conditions in the US corn belt (at 75% good-excellent it is the 5th highest rating for the past 25 years) and a higher than expected forecast from the USDA for US and global corn stocks.
According to the latest forecast from Macquarie the rout may be near an end. According to the bank, plugging historic pricing levels to stocks-to-use figures suggests that corn should be heading for about $2 a bushel. However, higher costs in recent years mean factors like increased US land values and Brazil’s transportation charges also need to be taken account of. Based on data since 1990 when the stocks-to-use ratio falls below 10% prices tend to trade 20-100% above the cost of production. Meanwhile when the stocks to use ratio is at 10-15%, prices trade, at best, with a 20% premium to production costs.
The current situation meanwhile, with stocks-to-use over 15%, implies prices can stay at the cost of production, but with a potential fall of 20% below, Agrimoney reports. With Macquarie estimating the cost of production at $4.12 per bushel, “we forecast the cash price in Illinois should trade about $3.75 a bushel”, according to Macquarie analyst Chris Gadd. “In reality there is maybe not that much more downside from here.”
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