Crude oil prices fell below $20 for the first time since 2002 and corn prices continue to creep lower. Valero was the latest ethanol plants to announce its idling several plants, and slowing production at others.
So, what will it take for corn prices to climb out of the bearish trend? Mark Gold of Top Third Ag Marketing says it will take several factors to push prices higher.
“We need to see some massive Chinese buying to start,” says Gold. “We need crude oil prices to go from $20 back to $40 a barrel, and it was pretty bad price action when they announced the agreement between Russia and OPEC that we rallied $8 and then went right back and made new lows again. Until we straighten out the oil problem and until we get some solid buying in here, we're going to continue to have this ethanol problem.”
Sam Hudson of Cornbelt Marketing says the best chance for corn to find support might be beyond crude oil market.
“[It’s] the product prices we have to keep an eye on,” says Hudson. “We still have about a 20% premium on ethanol to gasoline. The crude cuts Mark was talking about doesn't go a long way. What we need to see is more usage.”
Hudson doesn’t think demand for ethanol will reenter the picture quickly, as extended stay-at-home orders keep people off the road, while others might be timid to return to their normal schedules before the pandemic hit.
“That usage is not going to be lightning fast,” says Hudson. “It's going to have to be over the course of a couple of months. Everyone is not going to back to work, restaurants, theaters. I think it's going to be a scaled approach, in which case, it's not going to be a 'V' bottom for demand.”
“It'll recover once the Americans can get back out in the real world, again, without fear of getting the virus,” adds Gold. “We need a vaccine. If we get the vaccine, I think we'll recover much faster than people would think we would. But until we have that, it could be an issue out here.”
Gold reminds producers as planting season enters the picture, weather is a potential market mover.
“We still have weather, and we still have potential planting delays out here. We had three inches of snow in Chicago last night. We're going to get more tonight. So. It's not great planting weather right now. But I agree, we've got to move this ethanol. To me, it's crude oil will lead the way up. Gasoline will follow, in my opinion.”
When it comes to weather, the corn market could watch potential supply problems play out, Hudson fears last year’s weather - and decent production outcome - could continue to haunt the market.
“I would have thought that before this COIVD-19 situation popped up on top of things,” says Hudson. “When you planted half the bean crop and a pretty good chunk of the corn crop got planted after June 2nd last year, and you see it turned out the way it did, how do you build at risk premium? Coupled with the fact that we're losing demand at a very rapid rate.”
Hudson says the silver lining might be beefing up demand through feed use and exports.
“But even that can only fill the hole for so long,” says Hudson.
As the markets trend lower, some farmers are left with old crop corn, and debating on what marketing game plan will work best. Gold says a couple months ago, Top Third suggested farmers take advantage of basis levels and re-own it with call options.
“Now that we're down here at $3.20 corn, can we go to $2.90, $3.00,” asks Gold. “I think we can. My guess is that the worst of this comes on first notice date for the May contracts. There's an old saying buy contract lows with heavy deliveries on first notice day. And I think that's what we might see across the board in corn, wheat and beans, not that there will be a contract lows in the beans or the wheat, but I think it may be the buying opportunity because there is no weather premium put into this thing. And forget about whether we get the crop in on time or not, if we do have a drought this year, corn prices are going to rally at least enough to give you a good marketing opportunity.”