Consider This Before New Crop Corn Sales
Apr 12, 2012
Grain and soy markets are firm this morning on more talk that China’s Sinograin was in looking for 2-4 cargos of US corn (some thinking old crop while others thinking new crop interest). There is also talk that China has been in buying several cargos of US new crop beans this week off the PNW, and rumors that they have also been in buying cargos for July, Aug and Sept deliveries as well. I am also hearing some talk that US wheat exports are being underestimated and that both Argentine and Brazil are slowly fading from the equation. Net-net US grain and soy exports could end up being stronger than the USDA is currently estimating. This mornings old crop export sales numbers for corn were incredible strong at 959,100 metric tons.
Corn producers may have gotten a little nervous after several large analyst and firms have come out in the past couple of days with sizable new crop corn SELL signals. In fact, I have heard a couple of sources who are pulling the trigger on about 50% of their estimated production at the current Dec price levels of around $5.45. Let's take a quick moment and consider this move. Remember we are trying to become master chess players...not simply chess pieces!
- With many analyst throwing around a 1.6 to 1.7 bushel carry there is a ton of comparisons being made to 2009 when corn prices traded sub $4.20. I personally respect the comparisons and believe in studying our history, but I think during the past few years the landscape has dramatically changed.
- Bio-fuel production is certainly more important than it was in 2009, as we are seeing countries around the globe become receptive to ethanol and biodiesel as a viable fuel alternative. Both Argentina and Brazil are investing millions in corn based ethanol production facilities to help supplement sugar based ethanol. While here in the US corn being used for ethanol has jumped by almost 1.3 billion bushels from the end of 2008 to the end of 2011.
- Chinese corn demand is currently much stronger than it was in 2009. In fact, the USDA is currently estimating Chinese corn imports will reach about 5 million tons, some analyst think this number could be doubled before it is all said and done. It is certainly realistic to believe China could import 7-8 million.
- Global DDGS demand is also much stronger than in 2009. Just consider the fact DDGS imports into China jumped from a mere 7,000 metric tons for all of 2008 to over 3 million in 2010. Also consider US DDGS exports jumped from 1.7 million metric tons in 2007 to 8.2 million metric tons in 2010.
- The cash basis in corn is incredible strong, both here in the US and abroad. Bushels of corn today are simply not as readily available as they were in 2009. The domestic Chinese market is reporting prices at around $10 per bushel, while commercials here have been reportedly paying record high basis levels to acquire bushels this entire winter and now into spring.
- Farmers were not nearly as cash flush in 2009, nor did they have the storage capacity they have today. Point being, farmers will not have their hands forced as quickly as they have in the past. Being able to store corn and hold back supplies could keep the situation extremely tight for some time.
- Farm values have also sharply increased, meaning the cost of production has definitely been on the rise since 2009.
- Farm insurance guarantees for this season are set a $5.68 for many producers. In 2009, insurance guarantees were at about $4.00 a bushel (which at the time was the second highest prices ever offered). I am just not sure producers are going to be extremely eager to book a large number of bushels below the guaranteed insurance level.
With over 30% of our new crop production priced at levels well above $6.00, I see NO reason to get overly aggressive on pulling the trigger on any large sales at this stage of the game. Certainly we have downside risk, when don't we? But I think there are still a few hurdles this market will need to clear before a massive crop can be guaranteed.
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather. I know as a producer, you may have questions as to how this pertains to your farm and your marketing. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow." Just click here -