A Few Thoughts On New Crop Corn
Apr 02, 2012
Corn seems to be a bird of different colors. With little to no slowdown being noted in ethanol production, feed usage or overall exports and thoughts that cash-flush farmers will continue to hold a majority of last years production back until we see higher prices has left "old crop" supplies extremely tight. I guess the biggest question is, are "end-users" comfortable with the corn supplies that are thought to currently be available. Most importantly is China comfortable with their domestic corn situation and what maybe a "limited" supply now available form the US. My thought is, NO China is not comfortable with the situation and we have seen proof as they have been buyers of some 600,000 metric tons of "old crop" US corn as of late. Remember we do NOT listen to what China says, but rather simply pay very close attention to what they do.
Corn supplies are extremely tight here in the US as well, especially out in the Eastern corn-belt. Keep in mind this is where things started to heat up last year right before the big price run to higher ground. Getting bushels to this area seems to be a major concern moving forward and I anticipate the basis will continue to heat up as the commercials are forced to bid up for supplies. With this in mind I have to believe "old crop" prices should remain fairly well supported. I am NOT advocating any "bull-spreads" at this time, and in fact tend to believe we may be a little overdone, but I do believe "old crop" corn still has some upside potential. Especially if the USDA balance sheet shrinks some more, like many now anticipate, in the April 10th USDA report. The trade seems to feel like the "feed/residual" number is going to push higher, and ultimately put more pressure on the ending stocks.
New Crop Corn in my opinion is just NOT as "bearish" as many analyst want to make it out to be. Certainly there is downside risk as we stare down the barrel at almost 96 million acres, but you still have to question our overall yield. With an extra 1.4 million plus corn acres now coming from the Dakota’s and an additional amount out of the Delta and Southeast, I just have to question the 164 plus bushel yield estimates that are flying around in the trade. Traders now realize a 157-158 yield number is needed to ensure adequate pipeline supplies, so the debate now begins, will the national US average yield come in north of 158 or south of this number...which would ultimately push us to much higher prices? I am also thinking Fridays USDA planted acreage estimate for new crop corn is the highest it will be. My gut is telling me we buck traditional history and actually see soybeans steal a few more acres form corn in the coming weeks. Net-net, I am thinking planted corn acres may actually shrink a touch and the ending stock estimate maybe about as high as it is going to be. Until the market is convinced US corn yields are going to be above 158, I see downside risk in new crop corn limited to just $0.30 or $0.40 cents, while upside price movement holds much more potential. Because of the near-term "risk-to-reward" ratio I am also upping my bullish rating for corn.
Weather is obviously going to become a much bigger factor in the weeks ahead. Corn being planted "early" is not that big of a deal, but corn being planted early in these types of warm soil conditions could be a huge deal. Keep in mind many producers will roll corn acres in the ground early to ensure planting, but generally the soil temps are much cooler and the corn will not emerge for a few weeks, getting them past most late freezes. That is not the case this time around. Producers are finding that the soil temps are so warm the corn is emerging in 5-6 days. In fact there are several areas where producers are reporting that corn is already over one-foot tall. The problem now is any major freeze during April could be a complete game-changer. There are also several key growing regions in the US that are well behind annual rainfall amounts. Point being if the heat were to continue escalating at the current pace the corn crop could be in big trouble later in the growing season. My gut tells me China and the rest of the world are not comfortable with this scenario, because of this I would anticipate some additional weather premium needs to be added to new crop prices very shortly. Once again just another reason I believe we need to become even more bullish corn.
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, especially after last Friday's USDA Report. 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 -