Debate Rages Over US Corn Supplies
Sep 21, 2012
Corn traders are digesting a couple of key items right now. First is the lack of export interest. Do you realize US corn commitments for the current marketing year are now down over 30% compared to last year at this time. Bears believe corn will eventually have to trade down to a level that attracts some type of global buying of US corn. The problem is with South American supplies so much cheaper than US supplies the bears believe we will simply continue drifting lower until we become more competitive. The bulls will argue that increasing logistical constraints at the South American ports will soon start discouraging purchases driving more business back to the US. Its like the big midnight Christmas sales that run the day after Thanksgiving, sometimes the hassle and headaches just aren't worth the savings. My guess is if the Asian nations get in a jam they will quickly look to the US to source their corn. On the flip side, as long as they have adequate supplies they may not mind waiting in the long line for the savings. Outside of the lack of "export" interest, US "supply" is being heavily debated as well. One private analyst group yesterday proclaimed that the current USDA estimates are way too low and the national corn yield will end up closer to 135 bushels per acre and soybeans up around 38.7 bushels per acre. I am not sure how far out of their area they have driven or whose crops they have been looking at, but being from the "Show-Me" state (Missouri) I call B.S. In my opinion, we have a better chance of dropping below 115 bushels per acre than we do rebounding back up to 135 bushels per acre. Now if you were to tell me the USDA was going to lower harvested acres down below 82 or 83 million, then yes, maybe I could swallow a yield in the low 130s. In fact many producers I am talking to are starting to really worry about the serious "Aflatoxin" issues coming out of corn fields in Iowa and Illinois. Keep your eye on this as I believe it could become a much more talked about problem as we move forward. From what I hear the feed lots have been taking a large quantity of the aflatoxin corn (as they can feed it at a reduced blended level), but many are now "full-up" and are turing it away. Many elevators are turning away anything 20 parts or higher, and others are hitting producers with huge discounts. Bottom-line there may end up being a lot more corn than we thought that we simply can't do anything with. It will be interesting to see the actual numbers -- unfortunately -- that might go down in the USDA history books as yet another "unsolved mystery."
USDA's Stocks Report will be released next Friday and there seems to be some nervousness amongst the bulls. If you recall last year the Sept 30th Stocks Report for corn was 160+ million over trade expectations. There is also some fear that the USDA could raise the prior years' soybean crop.
Moral of the story, I am afraid the markets (corn and soy) could still succumb to additional long liquidation on fears of potentially bearish USDA "stocks" data next Friday, the bearish "acreage" numbers out of Informa Friday, and some increasing "production" numbers possibly coming from the USDA in their October report (only 15 trading days until its release). As long as "demand" stays backstage and "supply" continues to try and warm up the crowd center stage, I am afraid the critics and the fans are going to keep picking away and pointing out all of the reasons why prices are too high and why the "supply" story is overrated. However once the opening act, "supply," is eventually booed off the stage, I suspect the headliner, "demand," will come out and deliver a jaw dropping performance. Remember, we have already sold 75% of the USDA's estimated soybean sales forecast for the entire 2012-13 season. Unfortunately the question is how many critics and fans will be left in the crowd once "demand" actually gets a chance to take the stage and show the world why the price of admission was so high.
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