Counting the Bullish Cards In the Deck
Aug 23, 2012
I thought it was time to do a little review and examine a few of the more important cards that are currently in the deck. As you can see from the outline below, I believe the deck is currently stacked to favor the bulls. There are several "wild cards" that could ultimately change the outcome of the game and help the bears make a better hand, but you have to believe the bulls stand the best chance of drawing out to "Royal Flush." For now, I just wanted to start with corn. If you would like more of the story in soybeans and wheat, Sign-up here
- US Corn Quality - Bullish Card - I continue to hear more concerns about "quality." Low test weights (low 50s), poor sugar, poor starch, low kernel depth, aflatoxins, etc... This card has not been flipped over as of yet. There is talk circulating, but until we get deeper into harvest the full extent of the problems will not be revealed. I am thinking this could be a big bullish card as we move forward.
- US Corn Yield - Bullish Card - It has been dealt from the deck the past three months but continues to find its way back into the pile. My bet is we see the USDA once again lower yields, especially if the weekly "crop condition" estimates don't start improving. Many respected sources looking for the current 123.4 USDA yield estimate to fall south of 120 bpa. Wouldn't rule out a more extreme type move to 115 bpa.
- Total US Corn Production - Bullish Card - The current USDA estimate of 10.779 billion bushels seems high based on the harvested acres, the amount of silage cut, the yields, etc... Thoughts are we might eventually see a card come out of the deck that reveals a sub-10 billion bushel crop.
- US Corn Exports - Bearish Card - South American surplus and supplies are going to continue to weigh on US exports. Poor quality may also damper exports to some degree. One could argue an uptick in Chinese buying could turn this card bullish, but as of right now I have to label the card as bearish.
- Ethanol Mandate Reduction - Bearish Card - The powers that be in Washington are being pressured by voters and the media to waive the current RFS and reduce the ethanol mandates. If dealt out of the deck it would initially be interpreted as bearish. My thoughts are the card is buried fairly deep, along with the upcoming elections right around the next corner. I am also concerned that even IF it is dealt from the deck it will do very little to make more corn supplies available. Could actually tighten up or shrink the availability of DDGS and place more pressure on soymeal.
- US Weather - Bullish Card - Conditions may have improved the past few weeks for many areas of the country but we are still experiencing massive drought like conditions in several key growing regions. Talks are after this week we will return to more drought like conditions. There are also some talks that harvest weather could soon become a major concern. Many producers are talking about extremely weak corn stalks and ears that are missing kernels down by the butt of the cop (not the tip). The fear is any type of wind or hail could cause the ears to drop. An early freeze would devastate the bean crop. Moral off the story, the US weather card has the potential to be a massive bull.
- South American Production - Wild Card - Brazil is poised to see their best year ever in regards to corn exports. Moving forward however there is some fear that increasing ethanol demand and decreasing acreage (more acres going to soy) might limit exportable corn supplies moving forward. As for soybeans, there is no question more acres are going to go in the ground this coming season. More importantly though the trade will be watching South American weather, political constraints, logistical issues, labor concerns, etc...Palnting a record crop does not necessarily mean they will harvest a record crop or be able to get a record crop out of their backdoor. This card could definitely be a game changer. If had to give it an edge, I would give it to the bulls. The trade is already anticipating a record crop on record acreage, for the most part all we can do from here is get worse. Some type of weather hiccup, planting delays, harvest delays, drought, etc... Seems to be a little dry starting off.
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