Recent corn price weakness has a lot to do with both supply and demand considerations, a University of Illinois ag economist suggests.
Darrel Good says on the supply side, expectations of stronger yields in many areas suggest that the next USDA average yield forecast will be at least equal and perhaps exceed the September forecast.
While uncertainty about how much harvested acreage will not be cleared up until the next USDA crop report lingers, Good says it appears that production will be large enough to result in a sizable buildup in stocks by the end of the current marketing year.
Ethanol rumors key demand player
On the demand side, he says, the partial government shutdown has constricted livestock, grain and ethanol information, leaving only news of the leaked EPA report that suggests a reduction in Renewable Fuel Standard volume obligations.
The rumored drop – about three billion gallons – was not anticipated for many, and the reduction in the non-advanced component of the mandate from 14.4 to 13 billion gallons has been interpreted as a negative development for corn demand in 2014 and beyond, he says.
Even so, the EPA says the proposed changes have not been finalized, and the public has not commented, so the final rules could easily change. However, he says analyzing the potential impact on corn demand of a reduction in the implied mandate for renewable biofuels is useful.
For starters, domestic ethanol production has been relatively constant for the past four years, totaling 13.3 billion gallons in 2010, 13.9 billion in 2011, and 13.3 billion gallons in 2012, and production in 2013 will be within the range of the past three years, he says.