What Happens To Corn Prices In The Coming Months
Sep 14, 2010
This is a recent excerpt from my Daily Report, I talk a little about what you can expect to see from corn and bean prices during the coming weeks...hope you enjoy!
CORN: I have been talking to a few traders who are a little concerned about the USDA's tendency to increase yield numbers historically in October and who are worried about the USDA increasing acreage. For at least the past 25 years some of the most dramatic changes or revisions have happened in the October report. On average the USDA actually raises it's estimates by just over 100 million bushels, or about 1%. You also have to be aware of the fact that they always seem to find more bushels as we get closer to November. Corn crops, especially the big ones tend to get bigger in the later estimates.
I recently read in a report that since 1994, there has only been only eight years that the September corn yield estimate were actually below the August estimates, and in only two of those years did they actually reduce their estimates even further in the October report.
This more than likely happens because as maturity and harvest moves north, ear weights and ear counts are adjusted accordingly by the USDA. From what I am told, right now the USDA uses the five-year average ear weights in places where the crop is not mature enough. Once it becomes mature the actual grain weights are estimated and confirmed by drying them down. What happens then is that more of the actual numbers from the higher-yielding Corn Belt states are represented in the October and November report than in the August and September numbers. If those yields and weight are above the five-year average, they will more than likely make upward revisions to their total yield estimate.
We also need to be aware of the fact that some firms believe believe our final harvested acres could be at least a million acres larger than they used this month. That change in the acreage alone could add over 160 million more bushels to the big picture.
I am not trying to scare anyone out of being long this market I just want you to understand that they can twist and turn these numbers in a million different directions, and manipulate them in any manner they deem appropriate. Longer term I continue to believe we will be trading significantly higher. Most yield estimates so far are coming in anywhere between 10-20% below last years numbers. While the current USDA estimate has us less than 2% below last year.
Sure you can make the argument that most of the poor yields have come from IL and IN and things will improve as we move North. the problem is we would need to see crops beat last years number by 10-20% to off-set the losses we have witnessed to this point. Sure, in the past week we have seen a few fields come in better than last year, but by just a small percentage. If we assume that there are more fields that will come in better than a year ago and trim some of the losses we have seen to this point, I think we can project and conservatively estimate a total reduction across the board of between 5-7%. If that happens, yields will be in the 152-157 range, and ending stocks to usage will become extremely tight.
SOYBEANS: I know I have not been reporting as much about soybean as I have corn the past few weeks, but to be honest corn is stealing the show. Soybean supply levels look to be in descent shape, and the crop in both the US and in South America look like they may be better than initially anticipated. I have had a few producers ask what I thought would happen to soybean prices if we rally corn to the $5.50 range. I think there are a ton of variables to consider, and it will be tough to gauge as the market attempts to bid for spring acreage versus corn. I know this is very vague, but I would have to believe if corn trades up to $5.50 beans could realistically move into the $12-13 range.
WHEAT: Most of the traders are keeping a close eye on Russia and the debate on how many winter wheat acres will actually get seeded in time. The word from our best sources tell us that less than 30% of the land designated for sowing winter grain has actually got enough rain for planting. Some areas are improving but other key growing regions are no where close to being ready.
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