I feel the corn crop is out there!
Sep 14, 2009
Corn: I’ve been on the road for the last 30 days. I’ve seen a lot of the corn country and have spoken to several producers. My overall impression is the corn crop is out there but it may be a little wet at harvest. You need to get your propane locked up and in position. My biggest concern is I sense there is still a lot of old crop corn still to be priced. As for the upcoming crop, I get the strong impression that a large percentage of the crop is still unsold. Producers are making plans to store which implies there is a big potential for a secondary harvest low out there in February or March. One should be preparing for less than expected basis narrowing and deferred contracts potentially falling to the nearby contracts.
In summary this is going to be a dangerous year to hold inventory in the bin unpriced and hope for better prices. I really believe the odds are better than 60/40 that corn will be put in the bin at harvest and will pulled out of the bin next July cheaper than when it was put in when all cost are included. This strongly implies that all hedges are going to be maintained and rolled rather than liquidated and holding grain in the bin unpriced.
Soybeans: I have to tell you I did not see anything that made me really bearish. Granted, I’m no expert on bean production but I know we have a lot of disease coming back into the beans. The overall height seems to be average and a lot of beans are still really green for this time of year. Overall, I see no reason for the USDA's last estimate to be exceeding and a lot of reason why it could drop a bit. So overall I’m supply neutral. So what about demand? The big bull (China) has already suggested they are not going to buy as much as they did last year. They have accomplished their objective of building domestic stocks. Second, they are keeping their prices high domestically to motivate producers to increase production.
Finally, all signs indicate that the South American producers are eager to regain the market share they lost to the U.S. last year. Overall, the supply engine is gearing up and the demand engine is going on idle. This would suggest it’s only a short time before world stocks build and prices to the producer come under pressure. In fact as an advisor I’m more worried about getting some pricing done on the November 2010 contract than the 2009 contract.
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