USDA Acreage Report Bullish

June 30, 2010 03:48 AM

At least in the short-term, corn should get a boost, but analysts disagree on action to take.


Gulke: USDA Report is a Game-Changer

Utterback: Acreage Report Short-Term Bullish

Utterback: Acreage Report Short-Term Bullish

USDA surprised the trade again, with less corn and more soybean acreage than the trade expected, says Bob Utterback of Utterback Marketing. The trade expected 89.229 million acres of corn and USDA reported 87.872 planted. For soybeans, the trade expected 78.183 and USDA came in at 78.868, he reports. The stocks report indicated yields slightly down from previous estimates, he adds.

“On balance, this has to be considered as very favorable in light of the hard sell off we had going into the report. That said, we will still have plenty of corn around,” Utterback says. “So I expect an initial short-covering rally, then the market will take its lead from the outside markets, and resume the downtrend it has been in.”

Any short-term bounce is your opportunity to move old-crop inventories that aren’t already priced. “There is still a lot of old-crop to move and I continue to expect basis problems heading into fall,” he says. “This has mitigated the chance of $3 corn but it still suggests downside risk to $3.30 or $3.20 if yields average 165 or better. At 161 bu./acre, the recent lows may hold, but it will still be very difficult to get back over $4 until well into next year, if then.”

Gulke: USDA Report is a Game-Changer

“This report traditionally can be a blockbuster, and this one was,” says Jerry Gulke of the Gulke Group. “Estimated planted acres were wild, with both corn and soybeans up just 2% from last year.” Gulke points out that this survey was done in early June and is intentions. Corn acres in particular could drop. “The report didn’t show any recognition of prevented-planting acres. South Dakota should be down at least 30%.”

At the same time, stocks came in 288 million bushels below trade expectations, Gulke says. “We’ve been talking about low test weights and poor feed efficiency –I think we saw some of that in this report.” Gulke believes there’s a chance of a rally in anticipation of a bullish July 10 Supply-Demand report as USDA adjusts to these revised numbers.

“Now, even without EPA raising the ethanol blend, with China buying just 3 million metric tons of corn, and a record crop, we still could lower carryover for 2011/12. We now are in a position that we have to produce a good crop. We’ll need a price for December 2011 that convinces farmers to plant an additional 2 million acres.”

“Recent prices now are the line in the sand we shouldn’t go below any time soon, so I wouldn’t sell into this—the downside risk isn’t there,” says Gulke. “If you are short a lot of your crop you could sell puts against that, bringing in the premium to add to their sales price. We bought some calls against our short position. We’ll lose about 8¢/bu. on that but it’s far better than being in the market naked (no protection) or fully hedged

Bottom line in Gulke’s estimation: “We are in the catbird seat. I’m glad to be in agriculture—a bright spot in a world of pain.”

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