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SC Iowa | As I think back to that wild market, I recall several things about it:
1) Crop size kept getting smaller in '95 in several areas around the world, including the US...hot weather clipped the NE crop substantially
2) Export demand was unrelenting....in July 1995 the corn export projection for the 95/96 year was 1.875, but by April was projected at 2.250...China turned from being a net exporter to a large importer that year. We ended the year with 2.228 byn in exports.
3) Feed demand--this was the first "drill" of a livestock industry that had become more and more industrialized. In the fall of '95, there was much discussion about how quickly livestock would be liquidated as corn got above $3.....the December hog/pig report was the first major clue that "this time was different", and that livestock users would continue using corn much longer before starting to reduce consumption. The July 1995 report projected feed usage at 4.925 byn, but by November had dropped it to a projection of 4.575 Byn....in the end we used 4.711 byn for feed in 95/96..
The other point about feed demand is the definition of "being covered". In times past, a lot of livestock was raised by folks on individual farms with their own feed supply in hand. As we moved to an industrialized model, feed and ingredient storage is limited and purchased on a "just in time" plan. Businesses like that purchase corn futures to cover feed costs several months in the future, but buy the cash corn as they need it. This strategy lead many to think they knew their costs, but in reality were far off base, as corn basis went from even with the board to +100-200 over Sept '96 futures from early July to mid September.
THAT'S one of the reasons there is more interest in owning CASH coverage today, even if the carry is breakeven or less.
4) HTA'S---- some theorists will tell you this little time bomb added 50 cents to a dollar to the value of July corn futures
There are similarities and differences between 95/96 and 06/07. I would characterize 95/96 as being a market driven by smaller crops and unexpectedly large export demand. I characterize the 06/07 time period as being one with average crops, but unrelenting demand growth due to ethanol.
Ray J
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1995/1996 Corn market
