Corn futures started the week on a sour note. As the days progress, corn futures continue to record losses.
Corn futures must come to terms with demand destruction, caused by COVID-19. Jim McCormick, branch manager of Ag Market, says futures prices on Wednesday started “coming into line” with the harsh reality.
?What I mean by that is with the free fall in the energy market, due to the overproduction in Saudi Arabia and Russia. Part of it is plain and simple: As we lock down the country to stop the spread of COVID-19, we?re seeing massive demand destruction in gasoline,? McCormick said.
Current research suggests “massive destruction to domestic gasoline demand,” as people start to isolate themselves and postpone upcoming travel.
“There was a group that did some research and figured we could look for a 12.5-percent drop in demand, or loss in consumption of gasoline in the month of March, a 40-percent loss in comsumption of gasoline in April, and a 20-percent loss in the consumption of gasoline in May. You’re talking over a 8.6 billion (gallon) decline in consumption. That implies demand destruction of ethanol, or 331 million bushels of corn in the 2020 calendar year,” McCormick said.
Matters seem “gloomy right now.” However, McCormick looks to a couple situations playing out in the near-term, reversing the circumstances.
“(The) first one is planting this year’s crop. There are people thinking (there will be) 94 to 95 million acres of corn being planted. The odds of that happening are dropping rapidly. As the corn price drops hard, it will disincentivize people,” McCormick said.
“The second thing that’s not catching the headlines a lot is production in South America is dropping due to dryness and heat,” McCormick said. “There’s estimates that export demand out of Brazil could drop five to 10 million metric tonnes because of lack of production. That’s optimism that that demand will come back over to the United States.”
