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Corn Prices Expected to Drop Near-term

Corn Prices Expected to Drop Near-term

30 May 2012

ANALYSIS - The price of corn is in a downtrend, but will remain volatile, said Dr. Paul Aho during his lecture at the XXII Central American and Caribbean Poultry Conference in Panama, writes Chris Wright, 5m senior editor.

Dr. Paul Aho
Dr. Paul Aho

Dr. Aho evaluated the various factors that have influenced livestock costs such as oil prices, ethanol, and corn and soybean prices. Dr. Aho's conclusions, knowing that one can never guarantee these forecasts, showed that in the short-term input prices will remain volatile, particularly corn and oil, but with a downward trend.

For soybeans, expect it to take an extra year for prices to turn down. Second, these prices will remain low in the medium term, i.e. the next two to three years. Third, long-term input prices will rise again (expected by year 2019).

The significance of all this is that in the next two or three years there is a good opportunity for livestock producers to reduce their costs.

Effects of Ethanol

Aho said ethanol should not have to take all the blame for the high price of corn. Despite the high levels of ethanol production in the US, it has stabilized, which is positive. There is a direct relationship between oil prices and ethanol levels and prices. High oil prices encourage the ethanol industry, while low oil prices discourage production and ethanol prices.

By 2015, Aho believes there will be a drop in oil to $75 to $80 per barrel, from a high of $100 per barrel in 2011. But prices will rise again to 2019.

Corn Stocks Go Up

He expects corn stocks will go up based on anticipated global production. However, if reserves should remain low, as they have been in the US in recent years, this will be bullish for corn prices.

Currently, corn stocks are at all-time lows and therefore record high prices have ensued. For 2013, he expects very high stocks with very low prices. Aho said that in 2005/2006, the price of corn in Chicago was $100 per ton. In 2010/2011 corn rose to $225 per ton, and in 2011/2012 a new record was set in the US at $250 per ton.

All projections are for a bumper corn crop in the US this year as they have planted their crop about three weeks earlier than normal. If the weather remains favorable, there could easily be a record harvest. Therefore, Aho expects corn prices will fall in the short and medium term to $200 per ton.

In addition, other countries are expected to produce more corn, which is also positive for the livestock sector. As with oil, the long-term expectations are for corn prices to rise again.

Soybean Meal Remains Strong

In terms of soybeans and soybean meal, it is a little different story, Aho said. Soybean meal prices reached a high in 2007 and have remained there. Currently, US soybean meal prices are about $350 per short ton. Aho expected meal prices will remain high this coming year as well.

Factors influencing the soybean meal price include the drought in Argentina and the high demand from China. Although the soybean meal price will remain high in the short term, medium term he expects it will drop to $300 per ton (in 2015), then long-term it will rise again.

Role of Grain Speculation

Responding to a question about the role of speculation and high prices of grains, Aho said speculation creates more volatility in the market, but does not change the average price. Factors such as stocks of corn and other grains and demand set the average price of grain.

He believes speculators have created artificially high prices and volatility at this time. But this year might have an artificially low corn price, if speculators exit the market due to the expected decline in corn prices, concluded Dr. Aho.

Chris Wright

Chris Wright



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