Fundamentally Speaking

Earlier this month the USDA hiked the average farm price for U.S. corn by 10 cents to a range now at $3.45-4.05 for a midpoint of $3.75 per bushel for the 2015/16 marketing year.

This is slightly higher than the $3.68 the prior year and well below the $4.46 average farm price seen in the 2013/14 season.

The stock to use ratio is one of the better determinants of average farm prices as the accompanying scatterplot shows it explains about 85% of the variability in corn prices.

Based on the last WASDE report, this year's ending stock of 1.592 billion bushels is 140 million bushels less than the year ago figure and represents 11.6% of total usage projected at 13.755, a new all-time high by the way.

This is lower than the 12.6% ratio seen last year and helps explain why the USDA has forecasted cash corn prices higher this year than last.

Plugging in the 11.6% ratio into the formula actually calculates to an average farm price of $4.05 suggesting the USDA may be too low on their price forecast.

(KA)