Is US Corn Production Below 11 Billion Bushels?
Aug 06, 2012
Bullish traders have been placing bets for weeks on thoughts that the US corn crop may ultimately fall below 10.5 billion bushels. But from where I sit I am starting to think it will be tough for the USDA to deliver such a bullish number in the report this Friday. Yes, the USDA was extremely aggressive in their first round of cuts, and there are those in the market that believe they will be even more aggressive this time around. Just look at what Informa said on Friday, they believe the USDA will cut their yield estimate to 120.3 bushels per acre and deliver a total crop production number of around 10.338 billion bushels. I sorry, I am just not so sure I am in that same camp. In fact, if the USDA delivered a "total" US corn production number below 11.0 billion it would really be a shocker to me. My point is even if the USDA cuts another 1.2 to 1.9 billion bushels from total US production, we are still well above some of the numbers that bullish traders have already digested. Bottom-line, I believe we are going to have to see the USDA cut production numbers to levels well below 11 billion bushels to get a sustained push to higher ground. To get corn prices up to $9.00 per bushel I think we are going to need to see the USDA eventually cut "harvested acres" to 85 million or lower with a corn yield at or below 125 bushels per acre. I think a USDA corn yield estimate between 126 and 128bpa will push corn prices up closer to $8.50. My guess is anything less will do very little to drive prices higher for any sustained period of time, in fact we may actually see some long liquidation and profit taking on thoughts the US crop has stabilized. Moral of the story, I think it might be tougher than we think for the USDA to excite the "bulls" in this Friday's report. I certainly don't want to be "short," but I think you should be very cautious with your long positions.
USDA's August report is just four short trading days away (Friday 7:30am CST), there is little doubt in the trade they will be making another round of sizable cuts to production. Some analyst believe the USDA's current corn harvested acreage number is at least 5 million acres too high. The USDA is currently at around 89 million harvested corn acres and the trade seems to be thinking we could end up with less than 84 million harvested corn acres. The USDA is currently projecting total US corn production at 12.97 billion bushels with an average yield of 146 bushels per acre. Now all of a sudden we have reputable source projection a sub-10 billion bushel crop on a sub-120 bushel yield. My question now is can the USDA deliver a number that will somehow NOT disappoint the bulls??? My Initial thoughts are..."I doubt it."
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