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| Historically our fundimentals put corn prices in the tank. Ethanol is going to keep the price closer to $3 than $2, but that's about the only thing keeping prices above $1.99. We've had some tremdous runs in grain prices and most of it was due to outsiders buying aggressively. A slumping economy, some new rules and a less than steller attitude towards wall street means less of those dollars running up our market. Also, they may have become a little smarter about telegraphing their moves.
Btw, corn, soybeans and wheat are commodities and by definition are usually cheap - no value added yet. Oil is enjoying a prolonged run up in price, but notice how hard we are working on replacing it. Stocks are high right now and price is mainly supported by speculation - just like in grains, though, that will run out and prices will fall or we just won't use as much any more.
Suggesting that livestock producers need to figure out a way to feed $4 corn isn't reasonable (sort of like paying $450 cash rent with $3 corn). It's not that the livestock industry is based on feeding corn that's priced under the cop, it's based on feeding a fairly cheap, plentiful, easy to grow (generally) commodity and adding value to it. Just like ethanol btw.
I've said before the market doesn't not owe us a price - not even our cost of production. Our government likes cheap food since it helps folks buy other things and generally have a better standard of living. So, they throw money at us to keep us in business (barely - all the subsidies put together don't equal a 25 cent move in price most years).
So, now what? Probably the answer for the producer is to produce more - 300bpa yields at $2.50 and just about everyone is happy - enough corn to supply all users, cheap enough to make end users profitable and us producers have a profit. The ethanol industry is still pretty young and they've already increased their production/bushel significantly. Future improvements include more complex fuels that are a better match with gasoline. Replacing a chunk of our oil demand with ethanol means gasoline has a little competition and we don't need the middle east oil as much.
For us livestock guys, it's been really hard the last couple of years and the only guys left are those who really really really want to raise hogs (98 just left the guys who just really wanted to raise hogs). Numbers are down and likely will stay lower for a while. Big and small producers got hurt bad enough that the idea of expansion is non-existant. Maybe some facilities get replaced, but I don't think there is a banker wanting to loan money for hog production. It does mean potentially higher prices which leads to the ability to survive with $4 corn for a time, but not long term.
Like DJM stated though, it's not time to sell. There is still money chasing commodities and there is always potential for another run up, but I think the fireworks are over. They need to be. Corn works when it's cheap and plentiful. At least we have ethanol keeping a 1 from appearing in front of the price.
Thanks,
Pat | |
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$3.15 is next area of major support in corn
