Where Is All the Corn?
Jun 15, 2012
Where is all of the Corn? I have talked with several sources the past few days, each with years and years of experience in the industry ALL saying the same thing, "We have never seen it this tough to originate corn...I am telling you now the bushels are just not here!" Not only are the US bushels not here, but this could be one of the first times in years we see both India and China with production problems. Certainly "global demand" is presenting some concern on this side of the equation as Argentine and Brazilian corn looks much more attractive from a price standpoint (I am hearing US export corn still overvalued: US Gulf FOB=$270/MT; Arg=$240/MT, Brazil=$235MT), lets also not forget Ukraine corn. There is also some fear that the Brazilian corn crop could be getting bigger on record "second crop" production. From what I heard last night Brazil's Agroconsult estimated their second crop corn at a record 38.8 million metric tons, if this proves to be correct, then Brazil's total corn crop could push upwards to 73.8 million metric tons, keep in mind the USDA is currently at 69 million. The bigger question though in my opinion is what happens if China ends up with some type of production failure? I promise you now the balance sheets will quickly start to change. Keep in mind only about 50% of the Northern Chinese Plains are irrigated, this is the area being closely monitored and experiencing abnormally hot and dry conditions (temps in the 100's the past few days). You have to imagine even a small setback could push Chinese corn imports north of 10 million metric tons. A jump in Chinese imports and a US yield down around 155 bushels per acre makes this dance quickly change directions.
Soybean fundamentals continue to build a more bullish argument, even though recent price action would have you believing otherwise. Yesterday's NOPA crush numbers would force one to believe old crop ending stocks could be down closer to 120 or 130 million bushels vs the USDA's current estimate of 175 million, while new crop ending stocks could be down well under 100 million bushels as compared to 145 million in the the most recent USDA estimate. The fundamentals are telling us that we may soon NOT be able to keep up with domestic crush demand. This could even further intensify if recent rumors I am hearing about some cattle operations starting to make the switch from DDGS to soymeal plays out. If ethanol plants are forced to close because they simply can not source the corn or margins force them to temporarily shut down, end-users may soon be looking back to soymeal as a more viable option.... Then what? I am also hearing the Chinese still need to import a couple million tons of beans. With the Brazilian bean basis soaring (rumors of Brazil's FOB vessel bids were reportedly trading and rebid at +100 over July) and the "real" showing some improved strength the US could certainly see some increased soybean export activity in the weeks ahead. Just look at yesterday's export sales numbers that were much better than anticipated. The problem right now however is "money-flow." Prices continue to setback because we are NOT seeing any major players wanting to extend or add additional risk on the rallies. With so many large "Macro" concerns looming over the trade in the next several days I am doubtful large money-mangers want to extend exposure into these waters.
Greece will be the center of attention this weekend as Sunday's election could prove to be the straw that breaks the Camel's back in Europe. Be careful getting long the stock market even if the Greek elections end up triggering a rally, I am just not sure anything really changes. In my opinion the Europe Union is still on a path to destruction. The more prudent play maybe to simply wait for the rally to spook more nervous "shorts" out of their current positions then be a seller NOT a buyer. Following the elections most eyes will shift towards the Iranian negotiations, then to comments Wednesday from Fed Chairman Bernanke following the two day June Federal Reserve meeting. My guess is we will see the Fed extend "Operation Twist" and move one step closer to a new round of "quantitative easing." If Europe melts-down following the elections this weekend, I would suppose we will see the Fed do a little more. Personally though I am thinking they want to keep as much "powder" dry as they can, electing to use it later on down the road if and when we hit a more major US stock market set-back. Right now fuel prices are back under control which could spark some additional consumer spending and the US stock market is still trading higher on the year. Little or no help from the Fed could bring on some temporary disappointment, so be prepared for another rocky week.
We are making some moves in response to Tuesday's USDA report. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of the "Weather" trade, "Money-Flow" and the Outside Markets. Just click here - Van Trump Report