Should you be pricing corn on these rallies?
May 31, 2013
Corn acreage, with the continued delays, is obviously being highly debated. Several sources are thinking we could ultimately shave 1.5 to 4.5 million acres. My best guess is we lose 500,000 to 1 million down South, and 1 to 2 million towards the North. For argument sake instead of 89.5 million harvest acres assume we harvest 87.5 million acres. If we harvest a 155 type yield total production is still over 13.5 billion bushels. Meaning ending stocks more than likely double from the 750 million range today to the 1.5 billion bushel range. Keep in mind the USDA still has some fairly lofty "demand" estimates factored into the equation. If these numbers don't prove accurate we could be looking at even larger ending stocks. Below are a few of the numbers being questioned by the bears:
- Exports: USDA is basically thinking US exports will double, jumping from just below 750 million to 1.3 billion plus during this coming crop year. Even though China is off to a much more aggressive start than many in the trade were anticipating, its hard for me to imagine exports reaching even 1.2 billion. Keep in mind once China approves the phyto-sanitary risks associated with various varieties of South American corn, trade channels should more aggressively open up and US exporters will face even stiffer competition. Do realize in the past 10-years, primary foreign corn production has increased by almost 65%, while during the same time period, US production has increased by only 40%. Even ore worrisome is the fact exports in the foreign nations have expanded by nearly 190% compared to a contraction of more than 30% here in the US. I sure hope the USDA is right, and exports can significantly rebound higher, I am just not willing to bet any money on it right now.
- Ethanol: USDA has currently bumped corn used for ethanol to 4.8 billion bushels. Even though margins in the industry remain strong there are some questions as to if we will us this many bushels, once again maybe 100-200 million bushels too high. Just yesterday ethanol production for the week was reported at 863,000 barrels per day, down from last weeks 875,000. The problem is at this pace we will still NOT meet the current crop years USDA estimate of 4.6 billion bushels (meaning 4.8 could be a little stretch). Stocks however were reported at 16.047 million barrels and continue to slide, so I ma not ruling the 4.8 number out entirely, just concerned. I should also point out that ethanol imports were reported this week at 27,000 barrels per day compared to ZERO the past few weeks. With the South American harvest wrapping up I am wondering if ethanol imports will soon start to pick back up?
- Feed: USDA seems to be thinking corn used for feed will jumping from 4.4 billion bushels to 5.325 billion. This is a little tough for me to swallow as I still believe the cattle herd here in the US is contracting. My thoughts are the USDA is assuming corn prices will get cheap enough that no one will be seeking out feed alternatives to high-priced corn.
Moral of the Corn Story: From a card-counters perspective there are still more "bearish" cards in the corn deck right now than there are "bullish" cards. Yes, there are still some significant bullish "wild-cards" left that we always need to be aware of, and US weather remains a major one. We can sit here all day and debate the balance sheet but until Mother Nature plays here final card there is still a great deal of "unknown" left in the deck. As well, China always remains a wild-card, and is something we will be forced to remain cognizant of during the next 20 years. Bottom-line, until the US corn market makes it through pollination, perma-bulls will be enticed to make more wagers despite the negative card-count. Producers should use this momentum (during the next 60-dyas) to try and get another 20-30% priced based on the outlook and condition of your crop. Taking advantage of these "fear related" rallies should be an important part of your marketing plan.
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