Stock market and grain markets will likely decouple

By ANDREA JOHNSON, Assistant Editor
Sunday, November 23, 2008 8:23 PM CST

The stock market has taken a bad tumble, and that has affected corn and soybean markets that moved lower as well.

Ed Usset, University of Minnesota Extension grain marketing specialist, thinks the commodity market will soon begin to trade its own fundamentals.

“There has been research done on commodity prices and stock prices,” he said. “What is interesting is they seem to be independent of each other.”

The U.S. and global financial crisis has cut across all markets.

Crude oil prices have moved substantially lower. Usset thinks corn and soybean futures are more closely linked to crude oil futures than stock market numbers. That's because soybean oil is used for soydiesel and corn is used for ethanol - both renewable energy products.

Usset listed a number of factors that could affect the corn and soybean markets in the future.

Bullish - Ethanol demand for corn in the U.S. is expected to grow by 1 billion bushels for the current marketing year.

Bearish - Margins are very slim in ethanol and projected to stay that way for the foreseeable future.

“(Ethanol) firms have declared bankruptcy, and I suspect the list will grow in the months ahead,” Usset said. “The increasing demand for corn is riding a lame horse.”

Bullish - The U.S. will produce at 12 billion bushel corn crop this year, but corn ending stocks will decline by 30 percent.

Bearish - Export demand for corn is slowing. Feed demand for corn is expected to decrease in the year ahead. World wheat stocks are projected to build in the year ahead.

Bullish - Despite a 17 percent increase in U.S. soybean acres in 2008, ending stocks of soybeans are projected to remain the same.

Bearish - Export demand for soybeans is slowing. Crushing demands for soybeans will also slow in the year ahead. Global oilseed stocks are projected to build in the year ahead.

Bullish - The corn and soybean markets are oversold and must rebound.

Bearish - Usset is not ready to pick a bottom on the corn or soybean market.

Neutral but to watch - Local basis is tightening for both soybeans and corn. In many cases, the cash soybean basis has narrowed by more than 50 cents in the last few months.

Neutral but to watch - Next year, the market will try to determine how many acres of corn and soybeans U.S. farmers will plant.

“As we get into the New Year, that's our question, “How many acres are we going to have of corn and soybeans,” said Usset. “Right now the corn market, with its higher production costs, isn't viewed very favorably. You could make the argument for fewer corn acres. The ethanol plants all across the nation don't want to hear that.”

For more information on grain marketing, visit the Center for Farm Financial Management website found at www.cffm.umn.edu. Ed Usset shares a blog of his marketing thoughts. He also lists his 2008 Post-Harvest Marketing Plans and his 2009 Pre-Harvest Marketing Plans at those sites. You can reach Usset by phone at 1-800-234-1111. 

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