Corn bulls are happy to hear.....
May 13, 2013
Corn bulls were happy to hear that the USDA lowered yield estimates -5.6 bushels, from 163.6 down to 158 bushels per acre. Most in the trade however only view this as a "starting point," considering the early USDA estimates last year were off by close to 40 bushels per acre. Point is the USDA does their best to predict yields, but we can't put a lot of stock into these early numbers with an entire growing season ahead of us and an extremely volatile weather pattern in the mix. Numbers more concerning in my mind have to deal with "demand." As our good friend Tregg Cronin pointed out, "The most important statistic from the USDA report: Supply up 3.03 billion bushels, while demand is up only 1.785 billion bushels." Keep in mind most in the industry believe the "demand" numbers might be way too optimistic. The 16% jump in corn usage is clearly being based on lower priced corn being available to increase feed and residual (estimated up 950 million bushels), increase exports (estimated to improve by 550 million bushels), and increase ethanol usage (estimated to increase by 250 million bushels). In other words without prices moving lower demand will more than likely not increase as projected. Global production is also keeping a lid on prices. Do you realize this will be the fourth straight year of record foreign corn production (up an estimated 23.5 million tons), with large crops in South America, Europe and the Black Sea region. In fact global coarse grain supplies for 2013/14 are projected at a record 1.407.6 billion tons, up a whopping 113.8 million tons! If correct the USDA's current global stocks estimate of 154.6 million tons would be a new 13-year high. Even though the crop is a long ways from being out of the ground and harvested its tough to debate these numbers. Weather obviously remains the wild-card, and as a producer you have to ask yourself how much are you willing to bet on a 4th consecutive year of extremely disappointing yields? In my opinion this is your answer to how much you should have "unpriced" or "unhedged" at this juncture.
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