Fundamentally Speaking

This is the bullish argument for increased 2013-14 corn demand. CME Light Sweet Crude Oil is trading in the $89 per barrel price or better for the time period equal to 2013-14 corn marketing year for (September 2013 through August 2014). Fuel blenders throughout the World should be aggressive buyers of ethanol when they net more from ethanol than crude. Our crude model (pun intended) has a relationship, when back into a corn price, that looks something like this: corn at $7.00 per bushel ethanol blending aggressively occurs when crude is above $96 per barrel, $6.50; $90, $6.00; $85, $5.50; $80 and $5.00; $75. The current crude future is around $90 per barrel for the 2013-13 corn marketing year. This would indicate corn would have to roughly move above $6.50 per bushel in 2013-14 before aggressive purchases would end. The December 2013 CME corn future is around $5.50 per bushel. This would indicate aggressive ethanol purchases would occur until crude oil goes below $80 per barrel. An aggressive worldwide ethanol market could have US ethanol producers back using 5,000 million bushels of corn. This is 350 million bushels higher than USDAâ?™s early estimate. Non-USA Worldwide use of corn could grow just over 4% next year. (This growth rate or better has occurred in 5 of the last 12 years. In 2012-13 world corn use declined 2.7%. The last prior decline occurred in 2008-09. That year corn consumption was down 2.6%. The next year, 2009-10, non-US World use increased 4.5%.) If non-USA World corn production comes in at 602 million metric tons (4% larger than this year's (2012-13) record production of 580 million metric tons), consumption is around trend line and ending stocks experiences a minimal drop, then US corn could find a home for 2 billion bushel outside the country. This projection is 500 million bushel over USDA's early estimate. Using these projections, corn use for 2013-14 could be 13,860 million bushel. This is at the upper limits of US corn usage and 850 million bushels higher than USDA's preliminary estimates. USDA's first official look at 2013-14 will be in the May 2013 WASDE report. There are many"short comings" when trying to incorporate a larger usage, than USDA's, into one's marketing plan. First is the demand may not materialize. A strong dollar and weak energy demand could push crude oil prices lower than projected. Foreign production could have a huge jump. Year to year changes in non-US production has increase more than 12% in the past. (That increase occurred when general price levels were increasing strongly but could occur anytime.) Foreign demand for US corn could move lower than expected because of currency relationship, political reasons or maybe just no need (bad estimates). Price movement will not occur until the market reasonably believes; the extra demand is there. This might require going deep into a marketing year and risk "passing up" good price for something that may not occur or occurs too late. The last challenge is the old "catch all"; all other things known and known that could cause things to go bad - Murphy's Law with St. Patty's Day coming. The "take a ways" from this discussion- that this time- is sub $5.00 corn futures seems unlike but if it occurs, 2014-15 (two years out) may not be as bad as the numbers would indicate. Freeport, IL