A Few Thoughts on Corn Demand
Nov 19, 2012
Corn bulls were happy to hear that the EPA on Friday denied the request to waive the Renewable Fuels Standard (RFS) minimum requirements for ethanol (blending 13.2 billion gallons of ethanol into gasoline). The problem is "export sales" continue to be a major concern. Not only are current sales running at a fraction of our normal pace, but there has recently been a couple of "cancelations" that are cause for concern as well, especially the 1.2 million bushels that were recently canceled by Mexico. There is also some concern on the feed side of the equation as Friday's "Cattle-On-Feed" report showed cattle "placements" at just 87%, the lowest number reported since 1996. November 1st "on-feed" were down 5% from last year for the largest year-to-year decline in cattle feeding since July of 2009. This report suggests tight beef supplies at least through early 2013. As I reported the past several sessions, with poultry numbers down and fewer cattle moving to the feedlots we might see "feed" usage estimates slipping back as well. Ethanol production here in the US continues to struggle as well, and many will tell you it is being hampered by Brazilian exports (made from sugar) that continue to hit US shores. Several sources recently reporting ethanol imports for last month were averaging well above 55,000 barrels per day, almost triple the amount recorded last year during the same time period. Interesting to note that in the past 9 months, India is thought to have imported close to $200 million worth of Brazilian sugar, double what was registered during same period of 2011. My thoughts are if Brazilian sugar prices start to creep higher on tighter supplies ethanol imports from Brazil into the US might start to slow. Ultimately that could help boost our domestic production and push corn usage a little higher. This might be wishful thinking, but there is a possibility.
As for today, I am hopeful that US housing data will show continued strength and the "outside" markets will provide some support in the grain and soy markets. Despite being higher this morning I still find it unlike that many of the larger players are wanting to add and hold more length into this Thanksgiving holiday, even though there is generally a tendency for the Ag markets to work higher historically during this shortened week. The main concerns still reside: South American weather is currently a "non" event; US corn exports are anemic; the wheat market continues to wait on Egypt's next tender (but we are still miles behind in exports); wheat has also priced itself out of most feed-rations giving us cause for additional "demand" concerns; Chinese soybean "demand" is also being questioned, last week we heard news that China was canceling some of their US soybean purchases and now this week we are hearing that China has temporarily halted their weekly soybean sales in order to start building more state surplus. Net-net global "demand" across the grain and soy sectors remain in question. Until more supply side destruction is feared or some type of renewed buying interest or surge in demand is announced I believe the markets will continue to make lower highs and lower lows. The markets have seen steep setbacks the past several sessions so a small bounce may be in order. Personally though I would NOT be chasing any rally higher. I do not believe the downside move is over. Producers should continue to...
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