A Few Quick Thoughts on Old Crop Corn
Mar 12, 2012
Even though my guess is "old" crop corn will stay stuck in a range between $6.20 and $6.80, it continues to be the topic of many interesting debates. I thought I would touch on a few of the more intriguing thoughts that have been floating around this past week. I hope this helps give you some additional insight as to what several seasoned professionals in the trade seem to be thinking:
- In regards to Chinese demand - Obviously something is seriously wrong in China. Their domestic prices are soaring to new all-time highs, while many Chinese analyst are starting to point fingers at the Chinese government and the USDA, thinking this past years' corn crop was overestimated by anywhere from 7-24 million metric tons. There are also rumors flying around about Chinese importers buying corn off of the PNW (Pacific Northwest). There has been no confirmation of this, but there are confirmed reports of China buying at least 5 cargoes of DDGs over the past couple of weeks. Supposedly importers are worried the Chinese government will soon be raising their DDG import taxes, so they have ramped up their purchases trying to front run the changes.
- In regards to the 95 million plus corn acreage estimate thrown out by Informa. Just remember, last year we had 96 million in "planting intentions," but the massive floods and levy breaks rapidly decreased the planted acreage number. Therefore 96 million can not simply be thrown out of the equation. Personally, I think soybeans will push to 76 million, leaving corn closer to 95 million.
- In regards to the 164 per acre corn yield estimate. Yes corn traits continue to improve, but we have to ask were the additional corn acres are going to come from this year. My guess is up in the Dakota's, and on less than ideal corn growing ground that was flooded last season. In the end, this number maybe too high. You also have to believe this early in the game the USDA number has at least a 10% degree of deviation. The take-away is DO NOT rule out anything, be a good "risk-manager." Just as I personally believe the yield number is too high, I could be completely wrong. You can't afford the liberty of betting your entire crop on a hunch, be smart and continue to eliminate risk.
- In regards to "Usage" - Right now the world "stocks-to-usage" ratio is the lowest it has been in over 30 years at just about 52 days. Here at home we are running around 6.3% which is extremely tight. Just keep in mind even if we were to produce a massive crop and push ending stocks up closer to 1.7 billion our stocks-to-uage ratio would be only 13% which is actually still in the lower end of our 20 year range. The point is corn "usage" continues to rise and demand remains strong. In fact, many believe the corn market will remaining in a "rationing" type mode until monthly stocks reach an excess of 1.1 billion bushels. There is no debating the fact our "pipeline" usage number has vastly expanded. The trade is not going to feel comfortable until it is 100% sure we have at least one months supply on hand and available at all times. I am of the belief this will take at least a yield of 155 bushels per acre... and unfortunately that --my friends-- can NOT be "guaranteed" as of yet.
If you like this blog post and want to read more of my comments on the Grain and Livestock Markets, sign-up for my Free 30-Day Trial of the Daily Report.