Have We Seen the Highs In December Corn???
Sep 17, 2012
Corn traders continue to speculate on what the "total" US crop will eventually come in at. Obviously there are still many unanswered questions floating around (FSA acreage estimates, ethanol demand, exports, imports, feed usage, harvested acres, yield, etc...) but it seems the trade has shifted its range of guesstimates higher, from say the 9.8-10.2 billion bushel range up to something more like 10.2 to 10.7 billion bushels. Similar to last year when the trade digested the "worst case scenario" early on and is now looking and listening to "improved yields" coming across the wires. There is story after story circulating of producers in parts of Illinois and Iowa who were expecting yields a few weeks back in the 50-60 bushel range ending up with harvested totals closer to 100-120 bushels per acre. Irrigated producers throughout the Midwest are also reporting better than expected yields. Don't misunderstand what I am saying. We still have a ton of fields reporting "zero" to low double digit yields, but several of mid-range reports have improved. Just as we spent a couple of weeks hearing how the bad fields were getting worse, I believe we are now in that period of time where we have to hear about how the questionable fields have gotten better.
Demand has still not become the main story. And now that there is talk that supplies could be improving slightly we may find it tougher and tougher to gain a lot of ground. Especially since it is doubtful that the USDA will be dropping "ending stocks" below 625 million any time soon. That is leading me to believe the DEC12 corn contract highs are in place. My hunch is we stay somewhat range bound ($7.20's-$8.20's) through year-end. Beyond that point it will depend on how the "demand" story shapes up. Will China produce a record corn crop like the USDA is anticipating. Will Chinese demand slow down at all? Keep in mind China is now expected, for the first time ever, to use more corn for animal feed this year than the US does. Analyst are thinking rather than the US using an additional 20 to 40 million tons of corn for feed this year it will be China using more than we do. Best guess is that China uses 132 million tons compared to 112 million tons by the US. The question is will they end up being net-buyers of more corn than the market is currently estimating? I think they just might! Therefore if you are looking for a chance to sell $9.00 to $10.00 corn I think it will have to be in the late-spring or early-summer of 2013, probably something like the May-June-July timeframe. With this in mind Producers who are exclusively using "cash-sales" type marketing strategies should look to move ALL of their harvested corn that has any type of "quality" concerns. Anything harvested with any type of "mold" or "aflatoxin" issues should be sold. If you can afford to store the bushels until mid-2013 there is chance you can pick up a little more revenue. Keep in mind though if the "outside" markets turn less favorable for the funds there is a chance prices could fall below $6.50. As long as ending stocks stay below 800 million I find it hard to imagine corn trading much below that level. Producers who are comfortable using the board should consider moving ALL of your harvested bushels and re-owning paper simply to spec higher prices. I would ONLY be re-owning or buying a break to the lower end of the range, meaning something south of $7.50, probably something down closer to the $7.10-$7.20 range.
As for today, the trade will be digesting the latest USDA crop condition reports (scheduled to be released at 3:00pm CST). Thoughts are the corn harvest will have advanced more quickly than most had anticipated. From what I am hearing the US corn harvest could advance to 25% complete and the US soybean harvest 10% complete. I am doubtful that the soybean harvest makes a huge jump but it should certainly remain well above the five-year average. Overall conditions for soybeans should have improved as well. There is some talk that producers in some areas are neglecting the soybean harvest because of the poor quality and condition of the corn crop. With weak stalks (thoughts the ears might fall) and fears of mold and aflatoxin, many producers are trying desperately to get the corn out of the field in a hurry. The downside is soybeans might stay in the field a little longer than they should. As many of you know or have experienced in the past if you don't stay on the front side of your soybean harvest and conditions are dry it could eventually cost you some money. Ultimately my thoughts are improved conditions might be offset by some unforeseen losses due to delays getting the soybeans out of the fields. Only time will tell, but I am not looking for total soybean production to improve by much. I know there are a lot of guys looking for big gains, I am just not sold yet on a big jump in "total" production. In the end I still believe US production ends up sub-2.7 billion bushels and prices will eventually need to work higher. Remember, as Henry David Thoreau one said, "It's not what you look at that matters, it's what you see." Right now I see a tried market that needs a little time to catch its breath. This bull run in soy is not yet over, the market is simply adjusting to supply side improvements. The problem is "supply" is not going to be the story moving forward...the story is going to be that prices simply can not ration enough demand!
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